Taxation, Fines, and Producer Liability Rules: Efficiency and Market Structure Implications
This paper analyzes the comparative efficiency of producer liability rules and regulatory policy in short-run and long-run competitive equilibria with endogenous product safety. Pigouvian taxes on output and safety provision fail to achieve the long-run social optimum. An appropriately designed policy involving fines on accidents and subsidies on safety provision achieves efficiency; however, the optimal policy may involve the taxation, not the subsidization, of product safety. Tort liability also leads to efficient outcomes but may be associated with perverse structural changes. For example, increased liability exposure may induce de novo entry in hazardous sectors, even with fully capitalized firms.
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Volume (Year): 65 (1998)
Issue (Month): 1 (July)
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- Hamilton, Jonathan H & Sheshinski, Eytan & Slutsky, Steven M, 1989. "Production Externalities and Long-run Equilibria: Bargaining and Pigovian Taxation," Economic Inquiry, Western Economic Association International, vol. 27(3), pages 453-71, July.
- Marino, Anthony M., 1988. "Products liability and scale effects in a long-run competitive equilibrium," International Review of Law and Economics, Elsevier, vol. 8(1), pages 97-107, June.
- Kolstad, Charles D & Ulen, Thomas S & Johnson, Gary V, 1990. "Ex Post Liability for Harm vs. Ex Ante Safety Regulation: Substitutes or Complements?," American Economic Review, American Economic Association, vol. 80(4), pages 888-901, September.
- Carlton, Dennis W & Loury, Glenn C, 1980. "The Limitations of Pigouvian Taxes as a Long-Run Remedy for Externalities," The Quarterly Journal of Economics, MIT Press, vol. 95(3), pages 559-66, November.
- Hamada, Koichi, 1976. "Liability Rules and Income Distribution in Product Liability," American Economic Review, American Economic Association, vol. 66(1), pages 228-34, March.
- Ringleb, Al H & Wiggins, Steven N, 1990. "Liability and Large-Scale, Long-term Hazards," Journal of Political Economy, University of Chicago Press, vol. 98(3), pages 574-95, June.
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