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Liability or labeling? Regulating product risks with costly consumer attention

Maria Arbatskaya and Maria Vyshnya Aslam

Journal of Economic Behavior & Organization, 2018, vol. 154, issue C, 238-252

Abstract: This paper examines the liability and labeling approaches to regulating product safety. Stronger product liability increases producer care, which then has a negative “lulling effect” on consumer attention to warning labels. By contrast, more visible warning labels increase such consumer care, which then has a positive “vigilance effect” on producer care. Information campaigns educating consumers about product risks generate a similar vigilance effect. This happens because consumers view producer care and consumer care levels as strategic substitutes, while the firm views them as strategic complements. We argue that when a public policy is chosen, the endogeneity of consumer attention to warnings is not to be overlooked.

Keywords: Warning labels; Product labeling regulation; Mandatory disclosure; Product liability; Economics of attention (search for similar items in EconPapers)
JEL-codes: K13 L15 L13 D83 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:jeborg:v:154:y:2018:i:c:p:238-252