Liability versus Regulation for Controlling Product-Related Risks
AbstractLiability and regulation are equally good at controlling product-related risks when consumers suffer the same expected harm and perceive risks correctly. When they misperceive risks, however, liability is preferred because the product price accurately signals risk and therefore induces efficient purchase decisions. When consumers vary in their susceptibility to harm and accurately perceive risk, regulation dominates liability because under regulation, consumers bear their own damages and are therefore induced to self-select in their purchase decisions. When consumers also misperceive risk, however, the choice between the two modes of risk control is ambiguous, with neither being capable of achieving the socially optimal outcome. Generally, regulation is preferred when consumers perceive risks fairly accurately, and liability is preferred when they do not. JEL Classification: K13, L51 Key words: Products liability, regulation, risk perceptions
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 University of Connecticut, Department of Economics in its series Working papers with number 2012-17.
Length: 22 pages
Date of creation: Sep 2012
Date of revision:
Contact details of provider:
Postal: University of Connecticut 341 Mansfield Road, Unit 1063 Storrs, CT 06269-1063
Phone: (860) 486-4889
Fax: (860) 486-4463
Web page: http://www.econ.uconn.edu/
More information through EDIRC
Find related papers by JEL classification:
- K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
This paper has been announced in the following NEP Reports:
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.:
- 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.
- A. Mitchell Polinsky & William P. Rogerson, 1982. "Products Liability, Consumer Misperceptions, and Market Power," NBER Working Papers 0937, National Bureau of Economic Research, Inc.
- 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.
- Spence, A Michael, 1977. "Consumer Misperceptions, Product Failure and Producer Liability," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 561-72, October.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kasey Kniffin).
If references are entirely missing, you can add them using this form.