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The Uneasy Case for Product Liability


A. Mitchell Polinsky


Stanford Law School; National Bureau of Economic Research (NBER)

Steven Shavell


Harvard Law School; National Bureau of Economic Research (NBER)

November 19, 2009

Harvard Law Review, Forthcoming
Stanford Law and Economics Olin Working Paper No. 381
Harvard Law and Economics Discussion Paper No. 647
Harvard Public Law Working Paper No. 09-46

Abstract:     
In this Article we compare the benefits of product liability to its costs and conclude that the case for product liability is weak for a wide range of products. One benefit of product liability is that it can induce firms to improve product safety. Even in the absence of product liability, however, firms are often motivated by market forces to enhance product safety because their sales may fall if their products harm consumers. Moreover, products must frequently conform to safety regulations. Consequently, product liability might not be expected to exert a significant additional influence on product safety — and empirical studies of several widely sold products fail to find an effect of product liability on the frequency of product accidents. A second benefit of product liability is that it can improve consumer purchase decisions by causing product prices to increase to reflect product risks. But because of litigation costs and other factors, product liability may raise prices excessively and undesirably chill purchases. A third benefit of product liability is that it compensates victims of product-related accidents for their losses. Yet this benefit is only partial, for accident victims are frequently compensated by insurers for some or all of their losses. Furthermore, the payment of compensation for pain and suffering actually reduces the welfare of individuals because it effectively forces them to purchase insurance for a type of loss for which they ordinarily do not wish to be covered. Offsetting the potential benefits of product liability are its costs, which are great. Notably, the transfer of a dollar to a victim of a product accident via the liability system requires more than a dollar on average in legal expenses. Given the limited benefits and the high costs of product liability, we come to the judgment that its use is often unwarranted. This is especially likely for products for which market forces and regulation are relatively strong, which includes many widely sold products. On the other hand, the use of product liability may be desirable for products for which these factors are weak. Our generally skeptical assessment of product liability for products for which market forces and regulation are strong is in tension with the broad social endorsement of such liability.

Number of Pages in PDF File: 57

JEL Classification: K13

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Date posted: September 7, 2009 ; Last revised: December 3, 2009

Suggested Citation

Polinsky, A. Mitchell and Shavell, Steven, The Uneasy Case for Product Liability (November 19, 2009). Harvard Law Review, Forthcoming; Stanford Law and Economics Olin Working Paper No. 381; Harvard Law and Economics Discussion Paper No. 647; Harvard Public Law Working Paper No. 09-46. Available at SSRN: http://ssrn.com/abstract=1468562

Contact Information

A. Mitchell Polinsky
Stanford Law School ( email )
559 Nathan Abbott Way
Stanford, CA 94305-8610
United States
650-723-0886 (Phone)
650-723-3557 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Steven Shavell (Contact Author)
Harvard Law School ( email )
1575 Massachusetts
Hauser 406
Cambridge, MA 02138
United States
617-495-3668 (Phone)
617-496-2256 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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