Equilibrium and Welfare in a Model of Torts with Industry Reputation Effects
Andrzej Baniak and
Peter Grajzl ()
No 2012_4, CEU Working Papers from Department of Economics, Central European University
We study the problem of torts in a framework where a firm's accident adversely impacts all firms in the industry because of the presence of industry reputation effects. Industry reputation effects lead to interdependence among firms and give rise to strategic firm behavior. We characterize the industry equilibrium and the socially optimal industry configuration in such a setting. We then elucidate how the presence of industry reputation effects and the introduction of a liability regime in the form of a strict liability rule determine whether industry equilibrium is aligned or misaligned with the socially optimal industry configuration. Our results show that both the impact of industry reputation effects and the impact of the strict liability rule are in general contingent on the specifics of the tort problem at hand. In particular, we find that the presence of industry reputation effects can substitute for a suboptimal liability regime and that, in the presence of industry reputation effects, the introduction of the strict liability rule may be detrimental by steering the industry equilibrium away from the socially optimal industry configuration.
Date: 2012-04-10, Revised 2012-04-10
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed
Downloads: (external link)
http://www.personal.ceu.hu/staff/repec/pdf/2012_4.pdf Full text (application/pdf)
Journal Article: Equilibrium and Welfare in a Model of Torts with Industry Reputation Effects (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:ceu:econwp:2012_4
Access Statistics for this paper
More papers in CEU Working Papers from Department of Economics, Central European University Contact information at EDIRC.
Bibliographic data for series maintained by Anita Apor ().