Product Safety and Harm-Mitigation Incentives When Mitigation Lowers Consumption Benefits

Florian Baumann and Tim Friehe

The Journal of Law, Economics, and Organization, 2021, vol. 37, issue 1, 198-237

Abstract: To reduce the expected harm its product causes to consumers, a firm can invest in a product’s safety before sale or mitigate harm after sale in the event product risks materialize. After-sale harm mitigation interferes with consumers’ product use and reduces consumption benefits. We describe a firm’s incentives for safety investments and harm mitigation as a function of the level of the firm’s liability. Whereas post-sale mitigation incentives are scaled up by liability, pre-sale product safety is a U-shaped function of liability, making the two harm reduction instruments substitutes at low levels of liability and complements at high levels. To induce efficient harm mitigation, liability must be less than full. Further reducing the level of liability improves product safety at the cost of the firm’s profits. (JEL K13, D42).

Date: 2021
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://hdl.handle.net/10.1093/jleo/ewaa011 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:jleorg:v:37:y:2021:i:1:p:198-237.

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

The Journal of Law, Economics, and Organization is currently edited by Andrea Prat

More articles in The Journal of Law, Economics, and Organization from Oxford University Press Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK.
Bibliographic data for series maintained by Oxford University Press ().