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Product liability should reward firm transparency

Author

Listed:
  • Artigot, Mireia
  • Ganuza, Juan José
  • Gomez, Fernando
  • Penalva, Jose

Abstract

In this paper we analyze the role played by firms’ transparency decisions on product liability standards. In particular we focus on information provided by firms on their processes and products. We find that even if transparency is not of direct importance to the courts, that is, is not informative as to findings of product defectiveness in a given case, the Law, in order to improve the incentives for the firm to provide the desired level of product quality, should optimally set product liability standards as a function of a firm's transparency level. Courts should be more lenient (in terms of evidence showing that the manufacturer is not liable) with those firms who have been more transparent in terms of product features and manufacturing information. Our result is reinforced when transparency reduces evidentiary uncertainty before the courts. This has implications for the interplay between market forces and product liability.

Suggested Citation

  • Artigot, Mireia & Ganuza, Juan José & Gomez, Fernando & Penalva, Jose, 2018. "Product liability should reward firm transparency," International Review of Law and Economics, Elsevier, vol. 56(C), pages 160-169.
    • Handle: RePEc:eee:irlaec:v:56:y:2018:i:c:p:160-169
    DOI: 10.1016/j.irle.2018.10.002
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    References listed on IDEAS

    as
    1. Juan José Ganuza & Fernando Gomez & Jose Penalva, 2015. "Minimizing errors, maximizing incentives: Optimal court decisions and the quality of evidence," Economics Working Papers 1500, Department of Economics and Business, Universitat Pompeu Fabra.
    2. Ben-Shahar Omri, 2006. "The (Legal) Pains of Vioxx: Why Product Liability Can Make Products More Dangerous," The Economists' Voice, De Gruyter, vol. 3(6), pages 1-4, June.
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    More about this item

    Keywords

    Accidents and liability standards; Transparency; Consumer markets; Evidence; L51; H57; H24; D44; K13; K23; L51;
    All these keywords.

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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