Switching Consumers and Product Liability: On the Optimality of Incomplete Strict Liability
AbstractThis article shows that it may be socially optimal to grant accident victims less than full compensation. In our framework, firms are liable under product liability but also invest in care to prevent consumers switching to competitors. Affecting the partition of consumers by means of care-taking is not desirable from a social standpoint. Consequently, it may be optimal to reduce liability below full compensation in order to adjust firms’ care incentives.
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Bibliographic InfoPaper provided by Max Planck Institute for Research on Collective Goods in its series Working Paper Series of the Max Planck Institute for Research on Collective Goods with number 2010_03.
Date of creation: Jan 2010
Date of revision:
Tort law; product liability; care level; asymmetric information; switching;
Find related papers by JEL classification:
- 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-2010-01-23 (All new papers)
- NEP-CTA-2010-01-23 (Contract Theory & Applications)
- NEP-LAW-2010-01-23 (Law & Economics)
- NEP-MIC-2010-01-23 (Microeconomics)
- NEP-REG-2010-01-23 (Regulation)
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