Liability versus Regulation for Dangerous Products When Consumers Vary in Their Susceptibility to Harm and May Misperceive Risk

Miceli Thomas J. () and Kathleen Segerson ()
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Miceli Thomas J.: Department of Economics, University of Connecticut, 309 Oak Hall 365 Fairfield Way, Storrs, CT 06269, USA

Review of Law & Economics, 2013, vol. 9, issue 3, 341-355

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.

Keywords: products liability; regulation; risk perceptions (search for similar items in EconPapers)
JEL-codes: K13 L51 (search for similar items in EconPapers)
Date: 2013
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DOI: 10.1515/rle-2013-0004

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