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Cumulative Harm and Resilient Liability Rules for Product Markets

Andrew Daughety and Jennifer Reinganum ()

No 1125, Vanderbilt University Department of Economics Working Papers from Vanderbilt University Department of Economics

Abstract: In the traditional model of the law and economics of torts, harm accrues proportional to use. This has the remarkable implication for products-generated torts that product performance concerns (e.g., issues of care and of liability for harm) can be considered independently of market performance concerns (e.g., market structure and competition). Moreover, the classical analysis finds that all liability regimes (strict liability, no liability, and negligence based on the socially-efficient due care standard) yield the same choice of care by the firm in the unilateral care tort model. We modify the standard model to allow for cumulative harm (that is, the per-unit expected harm is increasing in the level of use); examples from pharmaceuticals, environmental risks, privacy, food products, and mechanical systems are provided. We show that, when expected harm is cumulative, the separation between the level of care and the level of output does not occur. We further show that the different possible liability regimes now produce different outcomes and yield different implications for social efficiency. This implies an interaction between law concerned with liability and law concerned with market performance. Since these generally governmental (and private law) responsibilities are divided among relevant agencies and institutions, and are the subjects of different bodies of law, this presents a challenge to the correct design of rules for agents in the economy. We argue for selection among alternative liability regimes based upon what we refer to as �resilience:� a resilient policy is robust to the incentives for agents to undermine it and flexible with respect to outside influences (e.g., from antitrust authorities or regulators). Strict liability is a resilient policy; no liability and negligence are not resilient. Thus, we provide a new argument for strict liability with respect to product-generated harms.

Keywords: Products liability; strict liability; negligence; cumulative harm; product quality (search for similar items in EconPapers)
JEL-codes: K13 L13 L15 (search for similar items in EconPapers)
Date: 2011-12
New Economics Papers: this item is included in nep-law
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://www.accessecon.com/pubs/VUECON/vu11-w25.pdf First version, September 2011 (application/pdf)

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Journal Article: Cumulative Harm and Resilient Liability Rules for Product Markets (2014) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:van:wpaper:1125

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