Controlling Product Risks when Consumers Are Heterogeneously Overconfident: Producer Liability versus Minimum-Quality-Standard Regulation

Andrzej Baniak and Peter Grajzl

Journal of Institutional and Theoretical Economics (JITE), 2016, vol. 172, issue 2, 274-304

Abstract: Contributing to the literature on the consequences of behavioral biases for market outcomes and institutional design, we contrast producer liability and minimum-quality-standard regulation as alternative means of social control of product-related torts when consumers are heterogeneously overconfident about the risk of harm. We elucidate the role of factors shaping the relative desirability of strict liability vis-á-vis minimum-quality-standard regulation from a social welfare standpoint. We also clarify when and why joint use of strict liability and minimum-quality-standard regulation welfare dominates the exclusive use of either mode of social control of torts.

JEL-codes: D03 D81 K13 L51 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (3)

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DOI: 10.1628/10.1628/093245616X14539644608248

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