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Liability and manufacturer warnings

  • Calcott, Paul
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    Liability for damages can motivate manufacturers to warn about dangerous products. However, there are two effects that can distort such incentives; the 'signaling effect' and the 'security effect'. The signaling effect tempts producers to warn too infrequently, out of a fear that demand will be adversely affected by warnings. The security effect, in contrast, disposes producers to warn too often, when warnings reduce exposure to liability. When manufacturers are exculpated from liability for warning, efficiency is more difficult to achieve than under strict liability. In particular, the signaling effect dominates when awarded damages are purely compensatory.

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    Article provided by Elsevier in its journal International Review of Law and Economics.

    Volume (Year): 28 (2008)
    Issue (Month): 2 (June)
    Pages: 98-105

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    Handle: RePEc:eee:irlaec:v:28:y:2008:i:2:p:98-105
    Contact details of provider: Web page: http://www.elsevier.com/locate/irle

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    1. Gary S. Becker, 1968. "Crime and Punishment: An Economic Approach," Journal of Political Economy, University of Chicago Press, vol. 76, pages 169.
    2. Farrell, Joseph, 1986. "Meaning and Credibility in Cheap-Talk Games," Department of Economics, Working Paper Series qt4968n3fz, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    3. Mark Bagnoli & Ted Bergstrom, 2005. "Log-concave probability and its applications," Economic Theory, Springer, vol. 26(2), pages 445-469, 08.
    4. Endres, A. & Ludeke, A., 1998. "Incomplete strict liability: effects on product differentiation and information provision 1," International Review of Law and Economics, Elsevier, vol. 18(4), pages 511-528, December.
    5. Doughety, Andrew F & Reinganum, Jennifer F, 1997. "Everybody Out of the Pool: Products Liability, Punitive Damages, and Competition," Journal of Law, Economics and Organization, Oxford University Press, vol. 13(2), pages 410-32, October.
    6. Abraham L. Wickelgren, 2006. "The Inefficiency of Contractually-Based Liability with Rational Consumers," Journal of Law, Economics and Organization, Oxford University Press, vol. 22(1), pages 168-183, April.
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