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Mandatory Versus Voluntary Disclosure of Product Risks

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Listed:
  • A. Mitchell Polinsky
  • Steven Shavell

Abstract

We analyze a model in which firms are able to acquire information about product risks and may or may not be required to disclose this information. We initially study the effect of disclosure rules assuming that firms are not liable for the harm caused by their products. Mandatory disclosure is obviously superior to voluntary disclosure given the information about product risks that firms possess, since such information has value to consumers. But firms acquire more information about product risks under voluntary disclosure because they can keep silent if the information is unfavorable. This effect could lead to higher social welfare under voluntary disclosure. The same result holds if firms are liable for harm under the negligence standard of liability. Under strict liability, however, mandatory and voluntary disclosure rules are equivalent because information concerning product risks is irrelevant to consumers (JEL D18, D62, D82, H23, K13, L15). The Author 2010. Published by Oxford University Press on behalf of Yale University. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org, Oxford University Press.

Suggested Citation

  • A. Mitchell Polinsky & Steven Shavell, 2012. "Mandatory Versus Voluntary Disclosure of Product Risks," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 28(2), pages 360-379.
  • Handle: RePEc:oup:jleorg:v:28:y::i:2:p:360-379
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    File URL: http://hdl.handle.net/10.1093/jleo/ewq005
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    References listed on IDEAS

    as
    1. Patrick Bolton & Mathias Dewatripont, 2005. "Contract Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262025760, December.
    2. Steven Shavell, 2003. "Economic Analysis of Accident Law," NBER Working Papers 9483, National Bureau of Economic Research, Inc.
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    4. Grossman, Sanford J, 1981. "The Informational Role of Warranties and Private Disclosure about Product Quality," Journal of Law and Economics, University of Chicago Press, vol. 24(3), pages 461-483, December.
    5. Mathios, Alan D, 2000. "The Impact of Mandatory Disclosure Laws on Product Choices: An Analysis of the Salad Dressing Market," Journal of Law and Economics, University of Chicago Press, vol. 43(2), pages 651-677, October.
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    More about this item

    JEL classification:

    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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