Liability versus Regulation for Dangerous Products When Consumers Vary in Their Susceptibility to Harm and Misperceive Risk
When consumers vary in their susceptibility to product-related harm, safety regulation dominates liability because when consumers bear their own damages they are induced to selfselect in their purchase decisions. When consumers also misperceive risk, however, liability may be preferred because the price of the product accurately conveys the risk, thereby eliminating any distortions due to misperception. Generally, regulation is preferred when consumers accurately perceive risk, and liability is preferred when they do not. JEL Classification: K13, L51 Key words: Products liability, regulation, risk perceptions
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- Spence, A Michael, 1977. "Consumer Misperceptions, Product Failure and Producer Liability," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 561-72, October.
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