Products Liability When Consumers Vary in Their Susceptibility to Harm and May Misperceive Risk
AbstractThis paper examines products liability when consumers have private information about their susceptibilities to product-related harm. In this case, it is efficient for consumers to self-select in their purchases, with those especially prone to harm refraining from purchase. Achieving this outcome requires consumers to bear their own harm, given that producers cannot observe consumer types. When consumers also misperceive risk, the problem becomes more complicated because accurate signaling of risk requires that firms bear liability. A trade-off therefore emerges between imposing liability on firms versus consumers. This paper characterizes the choice among liability rules in the presence of this trade-off.
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Bibliographic InfoPaper provided by University of Connecticut, Department of Economics in its series Working papers with number 2013-15.
Length: 28 pages
Date of creation: Jul 2013
Date of revision:
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Products liability; negligence; strict liability; consumer misperceptions;
Find related papers by JEL classification:
- K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-07-20 (All new papers)
- NEP-CTA-2013-07-20 (Contract Theory & Applications)
- NEP-MKT-2013-07-20 (Marketing)
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.:
- Kathryn E. Spier, 2011. "Product Safety, Buybacks, and the Post-Sale Duty to Warn," Journal of Law, Economics and Organization, Oxford University Press, vol. 27(3), pages 515-539.
- 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.
- T. Randolph Beard, 1990. "Bankruptcy and Care Choice," RAND Journal of Economics, The RAND Corporation, vol. 21(4), pages 626-634, Winter.
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