Credit 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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Find related papers by JEL classification: 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
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