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The Market Response to Product Safety Litigation


  • Viscusi, W Kip
  • Hersch, Joni


This paper examines the stock market impact of 29 product liability lawsuits reported in the Wall Street Journal from 1970-85, an additional series of Agent Orange events, and a set of regulatory events involving product risks. If these events and the costs associated with them were fully anticipated, then there would be no effect on the stock market price. Adverse stock market effects increase if the event involves a product liability action, bodily injury, or a court decision. Lengthy newspaper coverage and initial reports also have a strong effect. If there are multiple defendants, the market cost per firm is reduced. One widely publicized "good news" event--the final Agent Orange decision--led to a dramatic increase in stock prices. Copyright 1990 by Kluwer Academic Publishers

Suggested Citation

  • Viscusi, W Kip & Hersch, Joni, 1990. "The Market Response to Product Safety Litigation," Journal of Regulatory Economics, Springer, vol. 2(3), pages 215-230, September.
  • Handle: RePEc:kap:regeco:v:2:y:1990:i:3:p:215-30

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    References listed on IDEAS

    1. Stephen Martin, 1997. "Competition Policy: Publicity vs. Prohibition & Punishment," CIE Discussion Papers 1997-02, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
    2. Bushnell, James, 2005. "Looking for Trouble: Competition Policy in the U.S. Electricity Industry," Staff General Research Papers Archive 13140, Iowa State University, Department of Economics.
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    Cited by:

    1. Bartsch, Elga, 1997. "Economic consequences of the German environmental liability act: Capital market response for the chemical industry," Kiel Working Papers 822, Kiel Institute for the World Economy (IfW).
    2. Lanoie, Paul & Laplante, Benoit & Roy, Maite, 1998. "Can capital markets create incentives for pollution control?," Ecological Economics, Elsevier, vol. 26(1), pages 31-41, July.
    3. Daniel Martin Katz & Michael J Bommarito II & Tyler Soellinger & James Ming Chen, 2015. "Law on the Market? Abnormal Stock Returns and Supreme Court Decision-Making," Papers 1508.05751,, revised May 2017.
    4. repec:eee:corfin:v:46:y:2017:i:c:p:411-441 is not listed on IDEAS
    5. Maria De Paola & Vincenzo Scoppa, 2013. "Consumers’ Reactions to Negative Information on Product Quality: Evidence from Scanner Data," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 42(3), pages 235-280, May.
    6. W. Kip Viscusi, 1991. "Product and Occupational Liability," Journal of Economic Perspectives, American Economic Association, vol. 5(3), pages 71-91, Summer.
    7. Paul Lanoie & Benoit Laplante & Maité Roy, 1997. "Can Capital Markets Create Incentives for Pollution Control?," CIRANO Working Papers 97s-05, CIRANO.
    8. Palmer Michael & Sanders Thomas B., 2010. "Surprise! Most Blockbuster Jury Awards Are Ignored By The Stock Market," Review of Law & Economics, De Gruyter, vol. 6(2), pages 145-166, July.
    9. Seth Freedman & Melissa Kearney & Mara Lederman, 2012. "Product Recalls, Imperfect Information, and Spillover Effects: Lessons from the Consumer Response to the 2007 Toy Recalls," The Review of Economics and Statistics, MIT Press, vol. 94(2), pages 499-516, May.
    10. David Dranove & Subramaniam Ramanarayanan & Yasutora Watanabe, 2012. "Delivering Bad News: Market Responses to Negligence," Journal of Law and Economics, University of Chicago Press, vol. 55(1), pages 1-25.

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