IDEAS home Printed from
MyIDEAS: Login to save this article or follow this journal

A note on the optimality of (even more) incomplete strict liability

  • Baumann, Florian
  • Friehe, Tim
  • Grechenig, Kristoffel

This paper starts from the premise that liability is incomplete and establishes that firms may nevertheless invest excessively in care. This may justify a (further) reduction in the level of liability from a social standpoint, thereby arguing against seeking to approach full compensation as close as possible. In our framework, firms are liable under product liability, but also invest in care to prevent consumers' switching to competitors. Affecting the partition of consumers by means of care-taking is not desirable from a social standpoint. Consequently, it may be optimal to reduce liability below a given level of incomplete compensation in order to adjust firms' care incentives.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

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

Volume (Year): 31 (2011)
Issue (Month): 2 (June)
Pages: 77-82

in new window

Handle: RePEc:eee:irlaec:v:31:y:2011:i:2:p:77-82
Contact details of provider: Web page:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Kaplow, Louis & Shavell, Steven, 1996. "Accuracy in the Assessment of Damages," Journal of Law and Economics, University of Chicago Press, vol. 39(1), pages 191-210, April.
  2. Sebastian Kube & Michel André Maréchal & Clemens Puppe, 2010. "Do wage cuts damage work morale? Evidence from a natural field experiment," IEW - Working Papers 471, Institute for Empirical Research in Economics - University of Zurich, revised Oct 2011.
  3. Andrew F. Daughety & Jennifer F. Reinganum, 2006. "Markets, torts, and social inefficiency," RAND Journal of Economics, RAND Corporation, vol. 37(2), pages 300-323, 06.
  4. Steffen Huck & Jean-Robert Tyran, 2004. "Reciprocity, Social Ties, and Competition in Markets for Experience Goods," Discussion Papers 04-12, University of Copenhagen. Department of Economics.
  5. Rabin, Matthew, 1993. "Incorporating Fairness into Game Theory and Economics," American Economic Review, American Economic Association, vol. 83(5), pages 1281-1302, December.
  6. Falk, Armin & Fischbacher, Urs, 2006. "A theory of reciprocity," Games and Economic Behavior, Elsevier, vol. 54(2), pages 293-315, February.
  7. Ernst Fehr & Georg Kirchsteiger & Arno Riedl, 1993. "Does Fairness Prevent Market Clearing? An Experimental Investigation," The Quarterly Journal of Economics, Oxford University Press, vol. 108(2), pages 437-459.
  8. Rasmusen, E., 1992. "Stigma and Self-Fulfilling Expectations of Criminality," Papers 92-019, Indiana - Center for Econometric Model Research.
  9. Ernst Fehr & Simon Gaechter, . "Fairness and Retaliation: The Economics of Reciprocitys," IEW - Working Papers 040, Institute for Empirical Research in Economics - University of Zurich.
  10. Andrew F. Daughety & Jennifer F. Reinganum, 2008. "Products Liability, Signaling and Disclosure," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 164(1), pages 106-126, March.
  11. Eliaz, Kfir & Spiegler, Ran, 2004. "Contracting with Diversely Naive Agents," CEPR Discussion Papers 4573, C.E.P.R. Discussion Papers.
  12. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680, July.
  13. Georg Kirchsteiger & Ernst Fehr & Arno Riedl, 1993. "Does Fairness Prevent Market Clearing? An Experimental Investigation," ULB Institutional Repository 2013/5927, ULB -- Universite Libre de Bruxelles.
  14. R. Lynn Hannan & John H. Kagel & Donald V. Moser, 2002. "Partial Gift Exchange in an Experimental Labor Market: Impact of Subject Population Differences, Productivity Differences, and Effort Requests on Behavior," Journal of Labor Economics, University of Chicago Press, vol. 20(4), pages 923-951, October.
  15. repec:tpr:qjecon:v:108:y:1993:i:2:p:437-59 is not listed on IDEAS
  16. Paul Heidhues & Botond Koszegi, 2010. "Exploiting Naivete about Self-Control in the Credit Market," American Economic Review, American Economic Association, vol. 100(5), pages 2279-2303, December.
  17. Funk, Patricia, 2004. "On the effective use of stigma as a crime-deterrent," European Economic Review, Elsevier, vol. 48(4), pages 715-728, August.
  18. Stefano DellaVigna & Ulrike Malmendier, 2004. "Contract Design and Self-Control: Theory and Evidence," The Quarterly Journal of Economics, Oxford University Press, vol. 119(2), pages 353-402.
  19. Paul Heidhues & Botond Kőszegi, 2009. "Futile Attempts at Self-Control," Journal of the European Economic Association, MIT Press, vol. 7(2-3), pages 423-434, 04-05.
  20. Georg Kirchsteiger & Ernst Fehr & Simon Gächter, 1997. "Reciprocity as a contract enforcement device: experimental evidence," ULB Institutional Repository 2013/5911, ULB -- Universite Libre de Bruxelles.
  21. Alon Harel & Alon Klement, 2007. "The Economics of Stigma: Why More Detection of Crime May Result in Less Stigmatization," The Journal of Legal Studies, University of Chicago Press, vol. 36(2), pages 355-377, 06.
  22. Baumann, Florian & Friehe, Tim, 2009. "On the superiority of damage averaging in the case of strict liability," International Review of Law and Economics, Elsevier, vol. 29(2), pages 138-142, June.
  23. Lewis, Tracy R. & Sappington, David E. M., 1999. "Using decoupling and deep pockets to mitigate judgment-proof problems1," International Review of Law and Economics, Elsevier, vol. 19(2), pages 275-293, June.
  24. repec:reg:rpubli:575 is not listed on IDEAS
  25. 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.
  26. Shavell, Steven, 2007. "Liability for Accidents," Handbook of Law and Economics, Elsevier.
  27. Cooter, Robert & Porat, Ariel, 2001. "Should Courts Deduct Nonlegal Sanctions from Damages?," The Journal of Legal Studies, University of Chicago Press, vol. 30(2), pages 401-22, Part I Ju.
  28. Joseph Weber & Michael Willenborg & Jieying Zhang, 2008. "Does Auditor Reputation Matter? The Case of KPMG Germany and ComROAD AG," Journal of Accounting Research, Wiley Blackwell, vol. 46(4), pages 941-972, 09.
  29. 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.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:irlaec:v:31:y:2011:i:2:p:77-82. 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: (Zhang, Lei)

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.