Andrew F. Daughety () (Department of Economics and Law School, Vanderbilt University) Jennifer F. Reinganum () (Department of Economics and Law School, Vanderbilt University)
Additional information is available for the following
registered author(s):
We employ a simple two-period model to show that the use of confidential settlement as a strategy for a firm facing tort litigation leads to lower average product safety than that which would be produced if a firm were committed to openness. Moreover, confidentiality can even lead to declining average product safety over time. We also show that a rational risk-neutral consumer's response to a market environment, wherein a firm engages in confidential settlement agreements, may be to reduce demand. We discuss how firm profitability is influenced by the decision to have open or confidential settlements; all else equal, a firm following a policy of openness will pay higher equilibrium wages and incur higher training costs, though product demand will not be diminished (as it may be for a firm employing confidentiality). Further, we characterize the choice of regime, providing conditions such that, if the cost of credible auditing (to verify openness) is low enough, a firm will choose to pay for auditing and eschew confidentiality.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. 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.
Publisher Info
Paper provided by Department of Economics, Vanderbilt University in its series Working Papers with number
0317.
Andrew F. Daughety & Jennifer F. Reinganum, 2005.
"Secrecy and Safety,"
American Economic Review,
American Economic Association, vol. 95(4), pages 1074-1091, September.
[Downloadable!]
Find related papers by JEL classification: K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
This paper has been announced in the following NEP Reports:
References listed on IDEAS 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.:
Andrew F. Daughety & Jennifer F. Reinganum, 1999.
"Hush Money,"
RAND Journal of Economics,
The RAND Corporation, vol. 30(4), pages 661-678, Winter.
[Downloadable!] (restricted)
Cited by: (explanations, 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.)