Liability versus Regulation for Dangerous Products When Consumers Vary in Their Susceptibility to Harm and May Misperceive Risk
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Thomas J. Miceli
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Kathleen Segerson
Abstract
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 self-select in their purchase decisions, with higher-risk consumers refraining from purchase. 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. In comparing the two approaches to risk control, regulation therefore becomes more desirable as consumers perceive risk more accurately.
Acknowledgment
We acknowledge the very helpful comments of an anonymous reviewer and the research assistance of Suo Wang.
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- 1
For a general discussion of liability versus regulation for product risk, see Polinsky and Shavell (2010:1450–1453).
- 2
We do not consider consumer care as a determinant of risk. Consumer behavior does affect risk, however, through their purchase decisions.
- 3
Luppi and Parisi (2013) undertake a more thorough investigation of the impact of biased risk perceptions on the operation of the tort system. In their model (which only considers accidents between strangers), both injurers and victims systematically underestimate risk. They conclude that in some cases, the optimal response to this bias may actually be for courts to lower the due standard to reflect the average optimism in the population – a so-called forgiveness strategy.
- 4
We assume, for simplicity, that these distributions are independent.
- 5
For previous models of products liability, see Epple and Raviv (1978), Polinsky and Rogerson (1983), Landes and Posner (1985), Marino (1988), Daughety and Reinganum (1995), and Spier (2011). For surveys of the literature, see Polinsky and Shavell (2010) and Daughety and Reinganum (2011).
- 6
See Polinsky and Rogerson (1983) and Marino (1988) for models of products liability when firms have market power. In Section 2.5 below, we speculate on the impact of monopoly on the results.
- 7
We will assume perfect compliance with the standard throughout.
- 8
. We thank a referee for comments that inspired ©2014 by Walter de Gruyter Berlin / Boston
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Artikel in diesem Heft
- Optimal Warning Strategies: Punishment Ought Not to Be Inflicted Where the Penal Provision Is Not Properly Conveyed
- Article
- Liability versus Regulation for Dangerous Products When Consumers Vary in Their Susceptibility to Harm and May Misperceive Risk
- Who Benefits from the Uniformity of Contingent Fee Rates?
- Copyright without Creators
- Lawyers and Investment
