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Controlling Product Risks when Consumers Are Heterogeneously Overconfident: Producer Liability versus Minimum-Quality-Standard Regulation

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  • Andrzej Baniak
  • Peter Grajzl

Abstract

Contributing to the literature on the consequences of behavioral biases for market outcomes and institutional design, we contrast producer liability and minimum-quality-standard regulation as alternative means of social control of product-related torts when consumers are heterogeneously overconfident about the risk of harm. We elucidate the role of factors shaping the relative desirability of strict liability vis-á-vis minimum-quality-standard regulation from a social welfare standpoint. We also clarify when and why joint use of strict liability and minimum-quality-standard regulation welfare dominates the exclusive use of either mode of social control of torts.

Suggested Citation

  • Andrzej Baniak & Peter Grajzl, 2016. "Controlling Product Risks when Consumers Are Heterogeneously Overconfident: Producer Liability versus Minimum-Quality-Standard Regulation," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 172(2), pages 274-304, June.
    • Handle: RePEc:mhr:jinste:urn:sici:0932-4569(201606)172:2_274:cprwca_2.0.tx_2-h
    DOI: 10.1628/10.1628/093245616X14539644608248
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    3. Christoph Rössler & Tim Friehe, 2020. "Liability, morality, and image concerns in product accidents with third parties," European Journal of Law and Economics, Springer, vol. 50(2), pages 295-312, October.

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    More about this item

    JEL classification:

    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles

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