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Liability versus Regulation for Dangerous Products When Consumers Vary in Their Susceptibility to Harm and May Misperceive Risk

Author

Listed:
  • Miceli Thomas J.

    (Department of Economics, University of Connecticut, 309 Oak Hall 365 Fairfield Way, Storrs, CT 06269, USA)

  • Segerson Kathleen

    (Department of Economics, University of Connecticut, 309 Oak Hall 365 Fairfield Way, Storrs, CT 06269, USA)

Abstract

When consumers vary in their susceptibility to product-related harm, safety regulation dominates liability because when consumers bear their own damages, they are induced to self-select in their purchase decisions, with higher-risk consumers refraining from purchase. When consumers also misperceive risk, however, liability may be preferred because the price of the product accurately conveys the risk, thereby eliminating any distortions due to misperception. In comparing the two approaches to risk control, regulation therefore becomes more desirable as consumers perceive risk more accurately.

Suggested Citation

  • Miceli Thomas J. & Segerson Kathleen, 2013. "Liability versus Regulation for Dangerous Products When Consumers Vary in Their Susceptibility to Harm and May Misperceive Risk," Review of Law & Economics, De Gruyter, vol. 9(3), pages 341-355, December.
    • Handle: RePEc:bpj:rlecon:v:9:y:2013:i:3:p:341-355:n:2
    DOI: 10.1515/rle-2013-0004
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    References listed on IDEAS

    as
    1. 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.
    2. Andrew F. Daughety & Jennifer F. Reinganum, 2013. "Economic analysis of products liability: Theory," Chapters, in: Jennifer H. Arlen (ed.), Research Handbook on the Economics of Torts, chapter 3, pages 69-96, Edward Elgar Publishing.
    3. Steven Shavell, 1984. "A Model of the Optimal Use of Liability and Safety Regulation," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 271-280, Summer.
    4. Shavell, S., 1986. "The judgment proof problem," International Review of Law and Economics, Elsevier, vol. 6(1), pages 45-58, June.
    5. A. Mitchell Polinsky & William P. Rogerson, 1983. "Products Liability, Consumer Misperceptions, and Market Power," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 581-589, Autumn.
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    Citations

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    Cited by:

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    4. Friehe Tim & Pham Cat Lam, 2025. "The Direct Incidence of Product Liability on Wages," Review of Law & Economics, De Gruyter, vol. 21(1), pages 77-90.
    5. Baumann, Florian & Friehe, Tim, 2021. "Products liability, consumer misperceptions, and the allocation of consumers to firms," Economics Letters, Elsevier, vol. 198(C).
    6. Andrzej Baniak & Peter Grajzl, 2014. "Controlling Product Risks when Consumers are Heterogeneously Overconfident: Producer Liability vs. Minimum Quality Standard Regulation," CESifo Working Paper Series 5003, CESifo.

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    Keywords

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    JEL classification:

    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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