Products liability, consumer misperceptions, and the allocation of consumers to firms

Florian Baumann and Tim Friehe

Economics Letters, 2021, vol. 198, issue C

Abstract: This article shows that insulating market outcomes from consumers’ misperceptions about product risk by compensating them fully for harm is not necessarily socially optimal. When firms offer products with different safety levels and consumers overestimate harm, incomplete compensation of product accident victims improves the allocation of consumers to firms. This effect can dominate the higher social costs arising from inefficient product safety levels.

Keywords: Product liability; Product differentiation; Misperception of risk; Product safety (search for similar items in EconPapers)
JEL-codes: D43 K13 L13 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:198:y:2021:i:c:s0165176520304183

DOI: 10.1016/j.econlet.2020.109658

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