Product Liability: Detecting Potential Risks in New Products

Andrea Castellano, Gustavo Ferro and Maximiliano Miranda Zanetti

No 856, CEMA Working Papers: Serie Documentos de Trabajo. from Universidad del CEMA

Abstract: The central hypothesis of this article is that liability regulation can foster firms’ incentives to study the (potential) dangers of their products. We discuss alternative views and develop a formal model to analyze a firm´s incentive structure under the application of hindsight liability. We find a new role for liability regulation: to foster voluntary investment in research aimed at detecting potential risks in new products. The model allows us to analyze the firm´s investment decisions in research under different scenarios, each of which has varying expected costs. We offer some alternatives for institutional design seeking incentive compatibility with the aim proposed.

Keywords: risk; regulation; product liability; incentives; asymmetric information (search for similar items in EconPapers)
JEL-codes: K12 K22 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2023-08
New Economics Papers: this item is included in nep-law, nep-mic, nep-reg and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:cem:doctra:856

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