Over-optimism and lender liability in the consumer credit market
AbstractCredit purchases of consumer goods are commonly made upon terms governed by an agreement between the lender and the seller. The puzzle that the paper addresses is the issue that in this type of purchase the lender should be jointly liable with the seller for breach of sale contract by the seller (principle of joint responsibility). We study the rationale for this principle in situations where market failure arises because consumers underestimate the risk of product failure—for example due to seller misrepresentation—and it is difficult to enforce seller responsibility. We show that joint responsibility increases welfare and reduces the incentives of sellers to misrepresent the quality of their products. Copyright 2010 , Oxford University Press.
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Bibliographic InfoArticle provided by Oxford University Press in its journal Oxford Economic Papers.
Volume (Year): 62 (2010)
Issue (Month): 2 (April)
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Other versions of this item:
- Elisabetta Iossa & Giuliana Palumbo, 2006. "Overoptimism and Lender Liability in the Consumer Credit Market," Temi di discussione (Economic working papers) 598, Bank of Italy, Economic Research and International Relations Area.
- D18 - Microeconomics - - Household Behavior - - - Consumer Protection
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
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