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Why product liability may lower product safety

Author

Listed:
  • Baumann, Florian
  • Friehe, Tim
  • Rasch, Alexander

Abstract

This article shows that shifting accident losses from consumers to a monopolist may lower product safety when fully informed consumers differ in their level of harm. In determining product safety, the monopolist considers a linear combination of the average harm of all consumers served and the harm level of the marginal consumer. Shifting more losses to the monopolist allocates more of the firm’s attention to the average harm level, which is lower than the harm level of the marginal consumer. The fact that shifting losses to the firm may reduce product safety is robust to the consideration of insurance costs.

Suggested Citation

  • Baumann, Florian & Friehe, Tim & Rasch, Alexander, 2016. "Why product liability may lower product safety," Economics Letters, Elsevier, vol. 147(C), pages 55-58.
    • Handle: RePEc:eee:ecolet:v:147:y:2016:i:c:p:55-58
    DOI: 10.1016/j.econlet.2016.07.037
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    References listed on IDEAS

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    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.
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    Citations

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    Cited by:

    1. Tsvetanov, Tsvetan & Miceli, Thomas J. & Segerson, Kathleen, 2021. "Products liability with temptation bias," Journal of Economic Behavior & Organization, Elsevier, vol. 186(C), pages 76-93.
    2. Florian Baumann & Tim Friehe & Alexander Rasch, 2018. "Product Liability in Markets for Vertically Differentiated Products," American Law and Economics Review, American Law and Economics Association, vol. 20(1), pages 46-81.
    3. Charreire, Maxime & Langlais, Eric, 2021. "Should environment be a concern for competition policy when firms face environmental liability?," International Review of Law and Economics, Elsevier, vol. 67(C).
    4. Baumann, Florian & Rasch, Alexander, 2020. "Product liability and reasonable product use," ZEW Discussion Papers 20-071, ZEW - Leibniz Centre for European Economic Research.
    5. Tim Friehe & Christoph Rössler & Elisabeth Schulte, 2023. "Probing the case for manufacturer liability for harms caused by judgment-proof consumers to others," European Journal of Law and Economics, Springer, vol. 56(3), pages 443-460, December.
    6. Christoph Rössler & Tim Friehe, 2020. "Liability, morality, and image concerns in product accidents with third parties," European Journal of Law and Economics, Springer, vol. 50(2), pages 295-312, October.

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    More about this item

    Keywords

    Product liability; Monopoly; Product safety;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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