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Liability versus Regulation for Dangerous Products When Consumers Vary in Their Susceptibility to Harm and Misperceive Risk

Thomas Miceli, Rebecca Rabon and Kathleen Segerson ()
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Rebecca Rabon: University of Connecticut

No 2012-15, Working papers from University of Connecticut, Department of Economics

Abstract: When consumers vary in their susceptibility to product-related harm, safety regulation dominates liability because when consumers bear their own damages they are induced to selfselect in their purchase decisions. When consumers also misperceive risk, however, liability may be preferred because the price of the product accurately conveys the risk, thereby eliminating any distortions due to misperception. Generally, regulation is preferred when consumers accurately perceive risk, and liability is preferred when they do not. JEL Classification: K13, L51 Key words: Products liability, regulation, risk perceptions

Pages: 12 pages
Date: 2012-08
New Economics Papers: this item is included in nep-hea, nep-law and nep-mkt
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