Products Liability, Consumer Misperceptions, and Market Power
AbstractThis paper compares alternative liability rules for allocating losses from defective products when consumers under- estimate these losses and producers may have some market power. If producers do not have any market power, the rule of strict liability .leads to both the first-best accident probability and industry output. If producers do have some market power, strict liability still leads to the first-best accident probability, but there will now be too little output of the industry. It is shown that if market power is sufficiently large, a negligence rule is preferable. Under this rule, firms can still be induced to choose the first-best accident probability, but now the remaining damages are borne by consumers. Since consumers underestimate these damages, they buy more than under strict liability. However, there is a limit to how much the negligence rule can encourage extra consumption. It is shown that if market power is sufficiently large, the rule of no liability may then be preferred to the negligence rule. Without any liability imposed, producers will not choose the first-best accident probability. However, this may be more than compensated for by the increased output of the industry.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0937.
Date of creation: Jul 1982
Date of revision:
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
More information through EDIRC
Other versions of this item:
- A. Mitchell Polinsky & William P. Rogerson, 1983. "Products Liability, Consumer Misperceptions, and Market Power," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 581-589, Autumn.
- NEP-ALL-2002-03-04 (All new papers)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Thomas J. Miceli & Rebecca Rabon & Kathleen Segerson, 2012. "Liability versus Regulation for Controlling Product-Related Risks," Working papers 2012-17, University of Connecticut, Department of Economics.
- 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.
- Elisabetta Iossa & Giuliana Palumbo, 2006. "Overoptimism and Lender Liability in the Consumer Credit Market," Temi di discussione (Economic working papers) 598, Bank of Italy, Economic Research and International Relations Area.
- van Tongeren, Frank & Beghin, John C. & Marette, Stephan, 2009.
"A Cost-Benefit Framework for the Assessment of Non-Tariff Measures in Agro-Food Trade,"
Staff General Research Papers
13146, Iowa State University, Department of Economics.
- Frank van Tongeren & John Beghin & Stéphane Marette, 2009. "A Cost-Benefit Framework for the Assessment of Non-Tariff Measures in Agro-Food Trade," OECD Food, Agriculture and Fisheries Papers 21, OECD Publishing.
- Tomas J. Philipson & Eric Sun, 2008.
"Is the Food And Drug Administration Safe And Effective?,"
Journal of Economic Perspectives,
American Economic Association, vol. 22(1), pages 85-102, Winter.
- Tomas J. Philipson & Eric Sun, 2007. "Is the Food and Drug Administration Safe and Effective?," NBER Working Papers 13561, National Bureau of Economic Research, Inc.
- Martin Gaynor & Deborah Haas-Wilson & William B. Vogt, 1998.
"Are Invisible Hands Good Hands? Moral Hazard, Competition, and the Second Best in Health Care Markets,"
NBER Working Papers
6865, National Bureau of Economic Research, Inc.
- Martin Gaynor & Deborah Haas-Wilson & William B. Vogt, 2000. "Are Invisible Hands Good Hands? Moral Hazard, Competition, and the Second-Best in Health Care Markets," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 992-1005, October.
- Andrew F. Daughety & Jennifer F. Reinganum, 2006.
"Markets, Torts, and Social Inefficiency,"
RAND Journal of Economics,
The RAND Corporation, vol. 37(2), pages 300-323, Summer.
- 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.
- Boom, Anette, 1998. "Product risk sharing by warranties in a monopoly market with risk-averse consumers," Journal of Economic Behavior & Organization, Elsevier, vol. 33(2), pages 241-257, January.
- 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.
- Stéphan Marette & Jutta Roosen & Sandrine Blanchemanche, 2008. "Taxes and subsidies to change eating habits when information is not enough: an application to fish consumption," Journal of Regulatory Economics, Springer, vol. 34(2), pages 119-143, October.
- Andrzej Baniak & Peter Grajzl, 2012. "Equilibrium and Welfare in a Model of Torts with Industry Reputation Effects," CEU Working Papers 2012_4, Department of Economics, Central European University, revised 10 Apr 2012.
- Bruce Hay & Kathryn E. Spier, 2005. "Manufacturer Liability for Harms Caused by Consumers to Others," American Economic Review, American Economic Association, vol. 95(5), pages 1700-1711, December.
- Palumbo, Giuliana & Iossa, Elisabetta, 2002. "Lender liability in the Consumer Credit Market," Economics Working Papers (Ensaios Economicos da EPGE) 451, Graduate School of Economics, Getulio Vargas Foundation (Brazil).
- Stéphan Marette, 2007. "Minimum safety standard, consumers’ information and competition," Journal of Regulatory Economics, Springer, vol. 32(3), pages 259-285, December.
- Tsuneki, Atsushi, 2011. "Socially optimal liability rules for firms with natural monopoly in contestable markets," International Review of Law and Economics, Elsevier, vol. 31(2), pages 99-102, June.
- Coestier, B. & Gozlan, Estelle & Marette, Stephan, 2002. "Prevention, Limited Liability and Market Structure," 2002 International Congress, August 28-31, 2002, Zaragoza, Spain 8531, European Association of Agricultural Economists.
- Teresa John & Lemma Senbet & Anant Sundaram & Peter Woodward, 2005. "Limited Liability and Market Power," Review of Quantitative Finance and Accounting, Springer, vol. 25(3), pages 215-231, November.
- Anja Olbrich, 2008. "The optimal negligence standard in health care under supply-side cost sharing," International Journal of Health Care Finance and Economics, Springer, vol. 8(2), pages 73-85, June.
- Alfred Endres & Tim Friehe, 2011. "The Monopolistic Polluter under Environmental Liability Law: Incentives for Abatement and R&D," CESifo Working Paper Series 3649, CESifo Group Munich.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.