IDEAS home Printed from https://ideas.repec.org/a/aea/aecrev/v85y1995i5p1187-1206.html
   My bibliography  Save this article

Product Safety: Liability, R&D, and Signaling

Author

Listed:
  • Daughety, Andrew F
  • Reinganum, Jennifer F

Abstract

The authors develop a monopoly model of product design and safety signaling incorporating a parametric liability specification. The firm first engages in R&D to affect the safety of its product. Since the outcome of R&D trials is unobservable to consumers, the firm then chooses its price, understanding that consumers may draw inferences from the price about the product's safety. Consumers acquire and use the product; injuries lead to losses which are allocated by the liability system. The authors vary the liability system's allocation of losses and trace out the implications for R&D investment and the price-safety relationship. Copyright 1995 by American Economic Association.

Suggested Citation

  • Daughety, Andrew F & Reinganum, Jennifer F, 1995. "Product Safety: Liability, R&D, and Signaling," American Economic Review, American Economic Association, vol. 85(5), pages 1187-1206, December.
  • Handle: RePEc:aea:aecrev:v:85:y:1995:i:5:p:1187-1206
    as

    Download full text from publisher

    File URL: http://links.jstor.org/sici?sici=0002-8282%28199512%2985%3A5%3C1187%3APSLRAS%3E2.0.CO%3B2-E&origin=repec
    File Function: full text
    Download Restriction: Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Kihlstrom, Richard E & Riordan, Michael H, 1984. "Advertising as a Signal," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 427-450, June.
    2. Cooper, Russell & Ross, Thomas W., 1985. "Monopoly provision of product quality with uninformed buyers," International Journal of Industrial Organization, Elsevier, pages 439-449.
    3. P. A. Diamond, 1973. "Single Activity Accidents," Working papers 113, Massachusetts Institute of Technology (MIT), Department of Economics.
    4. Png, I. P. L., 1987. "Litigation, liability, and incentives for care," Journal of Public Economics, Elsevier, pages 61-85.
    5. Nancy A. Lutz, 1989. "Warranties as Signals under Consumer Moral Hazard," RAND Journal of Economics, The RAND Corporation, pages 239-255.
    6. Steven A Matthews & Doron Fertig, 1990. "Advertising Signals of Product Quality," Discussion Papers 881, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    7. Esther Gal-Or, 1989. "Warranties as a Signal of Quality," Canadian Journal of Economics, Canadian Economics Association, vol. 22(1), pages 50-61, February.
    8. Stiglitz, Joseph E, 1987. "The Causes and Consequences of the Dependence of Quality on Price," Journal of Economic Literature, American Economic Association, pages 1-48.
    9. Carl Shapiro, 1983. "Premiums for High Quality Products as Returns to Reputations," The Quarterly Journal of Economics, Oxford University Press, vol. 98(4), pages 659-679.
    10. Marilyn J. Simon, 1981. "Imperfect Information, Costly Litigation, and Product Quality," Bell Journal of Economics, The RAND Corporation, vol. 12(1), pages 171-184, Spring.
    11. Milgrom, Paul & Roberts, John, 1986. "Price and Advertising Signals of Product Quality," Journal of Political Economy, University of Chicago Press, pages 796-821.
    12. Grossman, Sanford J, 1981. "The Informational Role of Warranties and Private Disclosure about Product Quality," Journal of Law and Economics, University of Chicago Press, vol. 24(3), pages 461-483, December.
    13. Peter A. Diamond, 1974. "Single Activity Accidents," The Journal of Legal Studies, University of Chicago Press, vol. 3(1), pages 107-164, January.
    14. Russell Cooper & Thomas W. Ross, 1984. "Prices, Product Qualities and Asymmetric Information: The Competitive Case," Review of Economic Studies, Oxford University Press, vol. 51(2), pages 197-207.
    15. Polinsky, A. Mitchell & Rubinfeld, Daniel L., 1988. "The deterrent effects of settlements and trials," International Review of Law and Economics, Elsevier, vol. 8(1), pages 109-116, June.
    16. Michael Spence, 1977. "Consumer Misperceptions, Product Failure and Producer Liability," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 561-572.
    17. Shiou Shieh, 1993. "Incentives for Cost-Reducing Investment in a Signalling Model of Product Quality," RAND Journal of Economics, The RAND Corporation, pages 466-477.
    18. Yuk-Shee Chan & Hayne Leland, 1982. "Prices and Qualities in Markets with Costly Information," Review of Economic Studies, Oxford University Press, vol. 49(4), pages 499-516.
    19. Franklin Allen, 1984. "Reputation and Product Quality," RAND Journal of Economics, The RAND Corporation, pages 311-327.
    20. Bagwell, Kyle & Riordan, Michael H, 1991. "High and Declining Prices Signal Product Quality," American Economic Review, American Economic Association, pages 224-239.
    21. Klein, Benjamin & Leffler, Keith B, 1981. "The Role of Market Forces in Assuring Contractual Performance," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 615-641, August.
    22. Michael H. Riordan, 1986. "Monopolistic Competition with Experience Goods," The Quarterly Journal of Economics, Oxford University Press, vol. 101(2), pages 265-279.
    Full references (including those not matched with items on IDEAS)

    More about this item

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:aecrev:v:85:y:1995:i:5:p:1187-1206. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jane Voros) or (Michael P. Albert). General contact details of provider: http://edirc.repec.org/data/aeaaaea.html .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.