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The more the merrier? Disciplinary actions against malpractice

Author

Listed:
  • Limor Hatsor

    (Jerusalem College of Technology)

  • Artyom Jelnov

    (Ariel University)

Abstract

In a world of experience goods, two costly ex-post disciplinary actions can be used against malpractice of firms: consumer lawsuits and government investigation. We distinguish between government effectiveness in detecting ‘bad behavior’ vs. ‘good behavior’ of firms—both play a key role in the model. Our results suggest that while an effective government eliminates malpractice completely, the intervention of an ineffective government may backfire, failing to protect the product safety. The reason is that on top of its ineffectiveness, the government may deter consumers from pursuing lawsuits (crowding-out), augmenting the malpractice of firms compared to an equilibrium without government intervention. Additionally, an improvement in government ability to detect ‘bad behavior’ should be complemented by a reduction of lawsuit cost or an improvement in the ability to detect ‘good behavior’ in order to restore consumer incentive to pursue lawsuits.

Suggested Citation

  • Limor Hatsor & Artyom Jelnov, 2025. "The more the merrier? Disciplinary actions against malpractice," Review of Economic Design, Springer;Society for Economic Design, vol. 29(2), pages 313-333, June.
    • Handle: RePEc:spr:reecde:v:29:y:2025:i:2:d:10.1007_s10058-024-00365-x
    DOI: 10.1007/s10058-024-00365-x
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    More about this item

    Keywords

    Experience goods; Product safety; Malpractice; Tort law; Government inspection; Government effectiveness;
    All these keywords.

    JEL classification:

    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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