Tort reform and contingent incomplete liability

John Stranlund () and Jeffrey Wagner ()
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John Stranlund: University of Massachusetts at Amherst
Jeffrey Wagner: Rochester Institute of Technology

Economics Bulletin, 2023, vol. 43, issue 4, 1718 - 1729

Abstract: A surprising array of US manufacturers enjoy broad immunity from tort liability for public harm. We present a positive analysis of the consequences of such immunity with a model of buyer and manufacturer care-taking in a market relationship that features incomplete liability assignment and a probability that the representative manufacturer could lose its immunity as the public grows frustrated with increasing public harm. We refer to this combination of features as 'contingent incomplete liability'. We find that reduced manufacturer liability vis-a-vis tort reform can lead to less harmful products. However, for this to obtain, liability must be contingent and the probability all liability shifts to the manufacturer must be a function of its care choice. If liability is not contingent, and under a broad range of conditions when it is contingent, reducing manufacturer liability for public harm leads to less safe products. Regardless of whether tort reform leads to safer or less safe products, expected social welfare is lower in competitive markets.

Keywords: Contingent incomplete liability; liability; public harm; tort reform (search for similar items in EconPapers)
JEL-codes: H2 K1 (search for similar items in EconPapers)
Date: 2023-12-30
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