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Controlling Product Risks when Consumers are Heterogeneously Overconfident: Producer Liability vs. Minimum Quality Standard Regulation

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  • Andrzej Baniak
  • Peter Grajzl

Abstract

Contributing to the literature on the consequences of behavioral biases for market outcomes and institutional design, we contrast producer liability and minimum quality standard regulation as alternative means of social control of product-related torts when consumers are heterogeneously overconfident about the risk of harm. We elucidate the role of factors shaping the relative desirability of strict liability vis-à-vis minimum quality standard regulation from a social welfare standpoint. We also clarify when and why joint use of strict liability and minimum quality standard regulation welfare dominates the exclusive use of either mode of social control of torts.

Suggested Citation

  • Andrzej Baniak & Peter Grajzl, 2014. "Controlling Product Risks when Consumers are Heterogeneously Overconfident: Producer Liability vs. Minimum Quality Standard Regulation," CESifo Working Paper Series 5003, CESifo.
  • Handle: RePEc:ces:ceswps:_5003
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    Cited by:

    1. Christoph Rössler & Tim Friehe, 2020. "Liability, morality, and image concerns in product accidents with third parties," European Journal of Law and Economics, Springer, vol. 50(2), pages 295-312, October.

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    More about this item

    Keywords

    product risk; overconfidence; consumer heterogeneity; tort law; minimum quality standard;
    All these keywords.

    JEL classification:

    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles

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