Overoptimism 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. This type of purchase is generally subject to a legal principle of joint responsibility under which the lender and the seller are jointly liable to the consumer for breach of the sale contract by the seller. We study the rationale for this principle in situations where market failure arises because consumers under estimate the risk of product failure - for example due to selle rmisrepresentation - 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.
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Bibliographic InfoPaper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 598.
Date of creation: Sep 2006
Date of revision:
consumer credit; lender liability; misrepresentation; overoptimism; product failure;
Other versions of this item:
- Elisabetta Iossa & Giuliana Palumbo, 2010. "Over-optimism and lender liability in the consumer credit market," Oxford Economic Papers, Oxford University Press, vol. 62(2), pages 374-394, April.
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-10-07 (All new papers)
- NEP-CBE-2006-10-07 (Cognitive & Behavioural Economics)
- NEP-FIN-2006-10-07 (Finance)
- NEP-FMK-2006-10-07 (Financial Markets)
- NEP-LAW-2006-10-07 (Law & Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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