Optimal damages multipliers in oligopolistic markets
AbstractThis paper establishes that tort damages multipliers higher than one can be an instrument to induce imperfectly competitive producers to invest in product safety at socially optimal levels. In their selection of product safety levels, producers seek to maximize profits, neglecting the fact that higher investment in product safety increases consumer welfare; the discrepancy between private and social safety incentives can be remedied by setting damages multipliers to values greater than one. We show that the optimal damages multiplier depends on the characteristics of competition, such as the number of firms, the degree of substitutability/complementarity when products are heterogeneous, firms' cost structures, and the mode of competition. --
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Bibliographic InfoPaper provided by Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE) in its series DICE Discussion Papers with number 80.
Date of creation: 2012
Date of revision:
product liability; product safety; market power; level of damages; punitive damages;
Other versions of this item:
- Florian Baumann & Tim Friehe, 2012. "Optimal Damages Multipliers in Oligopolistic Markets," Working Paper Series of the Department of Economics, University of Konstanz 2012-08, Department of Economics, University of Konstanz.
- K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
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