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Uncertain product risk, information acquisition, and product liability

Tim Friehe and Elisabeth Schulte

Economics Letters, 2017, vol. 159, issue C, 92-95

Abstract: We describe how product liability interacts with regulatory product approval in influencing a firm’s incentives to acquire information about product risk, using a very parsimonious model. The firm may have insufficient information acquisition incentives if it is not fully liable for the harm caused by its product. The firm may also have excessive information acquisition incentives under both full and limited liability. Our analysis identifies efficiency-inducing liability rules.

Keywords: Innovation; Product liability; Uncertainty (search for similar items in EconPapers)
JEL-codes: K13 O31 D83 (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:eee:ecolet:v:159:y:2017:i:c:p:92-95