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The Economics of Product Safety

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Author Info
Walter Y. Oi
Abstract

The report of the National Commission on Product Safety stated that the American public is being exposed to many unreasonably hazardous products. Further, the post-accident remedies to compensate victims of product-related accidents are inadequate and encourage the continued production of unsafe products. It is believed that a shift in assignment of liability for accident costs from consumers to sellers would discourage sales of the more hazardous product grades thereby reducing the frequency and severity of home accidents. This conclusion cannot be derived from economic theory. Indeed, under fairly plausible conditions, a shift to producer liability can lead to the increased production of riskier product grades. The theory developed in this paper argues that the demand for a risky product is determined by the full price consisting of the price of the parent risky good plus the imputed expected damage costs. The consumer maximizes utility by demanding that product grade which minimizes his full price. In the concluding section of the paper, attention is directed to the welfare implications of the policy alternatives for the product safety problem.

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Publisher Info
Article provided by The RAND Corporation in its journal Bell Journal of Economics.

Volume (Year): 4 (1973)
Issue (Month): 1 (Spring)
Pages: 3-28
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Handle: RePEc:rje:bellje:v:4:y:1973:i:spring:p:3-28

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  1. Ram Singh, 2002. "Characterization of Efficient Product Liability Rules: When Consumers are Imperfectly Informed," Working papers 110, Centre for Development Economics, Delhi School of Economics. [Downloadable!]
  2. Sandra Hoffmann & W. Hanemann, 2005. "Torts and the Protection of 'Legally Recognized Interests'," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series 1025, Department of Agricultural & Resource Economics, UC Berkeley. [Downloadable!]
  3. Chichilnisky, Graciela, 1978. "Problems of market adjustments to occupational safety and health hazards," MPRA Paper 7998, University Library of Munich, Germany. [Downloadable!]
  4. Steven Shavell, 2005. "Liability for Accidents," NBER Working Papers 11781, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Hoffmann, Sandra & Hanemann, W. Michael, 2005. "Torts and the Protection of "Legally Recognized" Interests," Discussion Papers dp-05-21, Resources For the Future. [Downloadable!]
  6. Pouliot, Sebastien, 2008. "Estimating the Costs and Benefits of Cattle Traceability: the Case of the Quebec Cattle Traceability System," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6522, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  7. Daniel Flores, 2009. "All you can drink: should we worry about quality?," Journal of Regulatory Economics, Springer, vol. 35(1), pages 1-18, February. [Downloadable!] (restricted)
  8. Ram Singh, 2008. "Risk, Informational Asymmetry and Product Liability; An enquiry into conflicting objectives," Working papers 164, Centre for Development Economics, Delhi School of Economics. [Downloadable!]
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  9. Dinopoulos, Elias & Livanis, Grigorios & West, Carol, 2005. "How Cool is C.O.O.L.?," Working Papers 15658, University of Florida, International Agricultural Trade and Policy Center. [Downloadable!]
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