Switching Consumers and Product Liability: On the Optimality of Incomplete Strict Liability

Florian Baumann (), Tim Friehe and Kristoffel Grechenig ()
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Kristoffel Grechenig: Max Planck Institute for Research on Collective Goods, Bonn

No 2010_03, Discussion Paper Series of the Max Planck Institute for Research on Collective Goods from Max Planck Institute for Research on Collective Goods

Abstract: This article shows that it may be socially optimal to grant accident victims less than full compensation. In our framework, firms are liable under product liability but also invest in care to prevent consumers switching to competitors. Affecting the partition of consumers by means of care-taking is not desirable from a social standpoint. Consequently, it may be optimal to reduce liability below full compensation in order to adjust firms’ care incentives.

Keywords: Tort law; product liability, care level, asymmetric information, switching (search for similar items in EconPapers)
JEL-codes: K13 (search for similar items in EconPapers)
Date: 2010-01
New Economics Papers: this item is included in nep-cta, nep-law, nep-mic and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:mpg:wpaper:2010_03

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