Mandatory versus Voluntary Disclosure of Product Risks
We analyze a model in which firms are able to acquire information about product risks and may or may not be required to disclose this information. We initially study the effect of disclosure rules assuming that firms are not liable for the harm caused by their products. Although mandatory disclosure obviously is superior to voluntary disclosure given the information about product risks that firms possess —since such information has value to consumers — voluntary disclosure induces firms to acquire more information about product risks because they can keep silent if the information is unfavorable. The latter effect could lead to higher social welfare under voluntary disclosure. The same results hold if firms are liable for harm under the negligence standard of liability. Under strict liability, however, firms are indifferent about revealing information concerning product risk, and mandatory and voluntary disclosure rules are equivalent.
|Date of creation:||Oct 2006|
|Date of revision:|
|Contact details of provider:|| Postal: 366 Galvez Street, Stanford, California 94305-6015|
Phone: (650) 725-1874
Fax: (650) 723-8611
Web page: http://siepr.stanford.edu
More information through EDIRC
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.:
- Mathias Dewatripont & Patrick Bolton, 2005.
ULB Institutional Repository
2013/9543, ULB -- Universite Libre de Bruxelles.
- Andrew Daughety & Jennifer Reinganum, .
"Secrecy and Safety,"
American Law & Economics Association Annual Meetings
1039, American Law & Economics Association.
- Andrew F. Daughety & Jennifer F. Reinganum, 2003. "Secrecy and Safety," Vanderbilt University Department of Economics Working Papers 0317, Vanderbilt University Department of Economics, revised Sep 2003.
- Jennifer F. Reinganum & Andrew F. Daughety, 2004. "Secrecy and Safety," Econometric Society 2004 North American Summer Meetings 53, Econometric Society.
- Steven Matthews & Andrew Postlewaite, 1985. "Quality Testing and Disclosure," RAND Journal of Economics, The RAND Corporation, vol. 16(3), pages 328-340, Autumn.
- Paul R. Milgrom, 1981.
"Good News and Bad News: Representation Theorems and Applications,"
Bell Journal of Economics,
The RAND Corporation, vol. 12(2), pages 380-391, Autumn.
- Paul R. Milgrom, 1979. "Good Nevs and Bad News: Representation Theorems and Applications," Discussion Papers 407R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Steven Shavell, 2003.
"Economic Analysis of Accident Law,"
NBER Working Papers
9483, National Bureau of Economic Research, Inc.
- Joseph Farrell, 1985. "Voluntary Disclosure: Robustness of the Unraveling Result, and Comments on Its Importance," Working papers 374, Massachusetts Institute of Technology (MIT), Department of Economics.
- Steven Shavell, 1994. "Acquisition and Disclosure of Information Prior to Sale," RAND Journal of Economics, The RAND Corporation, vol. 25(1), pages 20-36, Spring.
- Mathios, Alan D, 2000. "The Impact of Mandatory Disclosure Laws on Product Choices: An Analysis of the Salad Dressing Market," Journal of Law and Economics, University of Chicago Press, vol. 43(2), pages 651-77, October.
When requesting a correction, please mention this item's handle: RePEc:sip:dpaper:06-006. 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: (Anne Shor)
If references are entirely missing, you can add them using this form.