Unmanifested Harm in Business-to-Consumer Transactions

Abstract:     
Consumer products sometimes display the quality of unmanifested harm: they have not yet failed or caused harm, but they have a statistical probability of failing prior to the expiration of their expected useful life or of causing harm to exposed persons. In this situation, should consumers be entitled to an immediate remedy, or should they be required to wait until the harm becomes manifest? This article considers four liability regimes for unmanifested harm: (a) delayed damages that require the consumer to wait until the harm occurs; (b) anticipatory damages that award money to a consumer based on the statistical probability that the product will fail or cause harm; (c) injunctive relief prohibiting the manufacturer from producing the product; and (d) trust damages, under which the manufacturer endows a bankruptcy-remote fund for the purpose of compensating consumers if and when harm occurs. It turns out that any of these remedies can be efficient, and that the efficiency implications of the different remedies depend on the facts and circumstances of a given situation.

Number of Pages in PDF File: 22

Keywords: Contract Law, Tort Law and Product Liability, Illegal Behavior and the Enforcement of Law

JEL Classification: K12, K13, K42

working papers series