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Taxation, Fines, and Producer Liability Rules: Efficiency and Market Structure Implications

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  • Stephen F. Hamilton

Abstract

This paper analyzes the comparative efficiency of producer liability rules and regulatory policy in short-run and long-run competitive equilibria with endogenous product safety. Pigouvian taxes on output and safety provision fail to achieve the long-run social optimum. An appropriately designed policy involving fines on accidents and subsidies on safety provision achieves efficiency; however, the optimal policy may involve the taxation, not the subsidization, of product safety. Tort liability also leads to efficient outcomes but may be associated with perverse structural changes. For example, increased liability exposure may induce de novo entry in hazardous sectors, even with fully capitalized firms.

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Bibliographic Info

Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 65 (1998)
Issue (Month): 1 (July)
Pages: 140-150

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Handle: RePEc:sej:ancoec:v:65:1:y:1998:p:140-150

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Web page: http://www.southerneconomic.org/
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  1. Carlton, Dennis W & Loury, Glenn C, 1980. "The Limitations of Pigouvian Taxes as a Long-Run Remedy for Externalities," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 95(3), pages 559-66, November.
  2. Hamada, Koichi, 1976. "Liability Rules and Income Distribution in Product Liability," American Economic Review, American Economic Association, American Economic Association, vol. 66(1), pages 228-34, March.
  3. Hamilton, Jonathan H & Sheshinski, Eytan & Slutsky, Steven M, 1989. "Production Externalities and Long-run Equilibria: Bargaining and Pigovian Taxation," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 27(3), pages 453-71, July.
  4. Ringleb, Al H & Wiggins, Steven N, 1990. "Liability and Large-Scale, Long-term Hazards," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 98(3), pages 574-95, June.
  5. Marino, Anthony M., 1988. "Products liability and scale effects in a long-run competitive equilibrium," International Review of Law and Economics, Elsevier, Elsevier, vol. 8(1), pages 97-107, June.
  6. Kolstad, Charles D & Ulen, Thomas S & Johnson, Gary V, 1990. "Ex Post Liability for Harm vs. Ex Ante Safety Regulation: Substitutes or Complements?," American Economic Review, American Economic Association, American Economic Association, vol. 80(4), pages 888-901, September.
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Cited by:
  1. Stephan Marette & Estelle Gozlan & Bénédicte Coestier, 2004. "On the Limitation of Penalties and the Non-Equivalence of Penalties and Taxes," Working Papers, INRA, Economie Publique 2004/02, INRA, Economie Publique.
  2. Ram Singh, 2009. "RISK, INFORMATIONAL ASYMMETRY AND PRODUCT LIABILITY: An Enquiry Into Conflicting Objectives," Pacific Economic Review, Wiley Blackwell, Wiley Blackwell, vol. 14(1), pages 89-112, 02.
  3. Bruce Hay & Kathryn E. Spier, 2004. "Manufacturer Liability for Harms Caused by Consumers to Others," NBER Working Papers 10972, National Bureau of Economic Research, Inc.
  4. Bruce Hay & Kathryn E. Spier, 2005. "Manufacturer Liability for Harms Caused by Consumers to Others," American Economic Review, American Economic Association, American Economic Association, vol. 95(5), pages 1700-1711, December.

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