Product Safety: Liability, R & D and Signaling
The authors develop a monopoly model of product design and safety signaling incorporating a parametric liability specification. The firm first engages in R&D to affect the safety of its product. Since the outcome of R&D trials is unobservable to consumers, the firm then chooses its price, understanding that consumers may draw inferences from the price about the product's safety. Consumers acquire and use the product; injuries lead to losses which are allocated by the liability system. The authors vary the liability system's allocation of losses and trace out the implications for R&D investment and the price-safety relationship. Copyright 1995 by American Economic Association.
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|Date of creation:||1992|
|Date of revision:||1994|
|Contact details of provider:|| Postal: University of Iowa, Department of Economics, Henry B. Tippie College of Business, Iowa City, Iowa 52242|
Phone: (319) 335-0829
Fax: (319) 335-1956
Web page: http://tippie.uiowa.edu/economics/
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- Michael H. Riordan, 1986. "Monopolistic Competition with Experience Goods," The Quarterly Journal of Economics, Oxford University Press, vol. 101(2), pages 265-279. Full references (including those not matched with items on IDEAS)
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