Markets, Torts, and Social Inefficiency
AbstractWe provide a model wherein oligopolists produce differentiated products that also have a safety attribute. Consumption of these products may lead to harm (to consumers and/or third parties), lawsuits, and compensation, either via settlement or trial. Firm-level costs reflect both safety investment and production activities, as well as liability-related costs. Compensation is incomplete, both because of inefficiencies in the bargaining process and (possibly) because of statutorily established limits on awards. We compare the market equilibrium safety effort and output levels to what a planner who is able to set safety standards, but takes the market equilibrium output as given, would choose.
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Bibliographic InfoArticle provided by The RAND Corporation in its journal RAND Journal of Economics.
Volume (Year): 37 (2006)
Issue (Month): 2 (Summer)
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Web page: http://www.rje.org
Other versions of this item:
- Andrew F. Daughety & Jennifer F. Reinganum, 2003. "Markets, Torts and Social Inefficiency," Vanderbilt University Department of Economics Working Papers 0308, Vanderbilt University Department of Economics.
- D4 - Microeconomics - - Market Structure and Pricing
- K0 - Law and Economics - - General
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
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