RISK, INFORMATIONAL ASYMMETRY AND PRODUCT LIABILITY: An Enquiry Into Conflicting Objectives
Risky products inflict two costs on society; the accident and the insurance costs. The expansion in the scope of product liability since the late 1970s has increased the cost of third-party liability insurance. However, the economic analysis has, traditionally, focused on only the accident costs. Some recent works suggests a strict trade-off between minimization of the accident costs and the insurance costs. In this paper, we extend the analysis by considering both types of costs. An efficiency characterization of product liability rules is provided by assuming informational asymmetry about the risk. We show that it is possible to achieve efficiency with respect to the insurance costs as well as the care levels. Copyright 2009 The Author. Journal compilation 2009 Blackwell Publishing Asia Pty Ltd
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Volume (Year): 14 (2009)
Issue (Month): 1 (02)
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