Abstract

http://ssrn.com/abstract=1680932
 
 

References (90)



 
 

Citations (2)



 


 



Should Consumers Be Permitted to Waive Products Liability? Product Safety, Private Contracts, and Adverse Selection


Albert H. Choi


University of Virginia School of Law

Kathryn E. Spier


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

March 8, 2013

Virginia Law and Economics Research Paper No. 2010-11
Harvard Law and Economics Discussion Paper No. 680

Abstract:     
A potentially dangerous product is supplied by a competitive market. The likelihood of a product-related accident depends on the unobservable precautions taken by the manufacturer and on the type of the consumer. Contracts include the price to be paid by the consumer ex ante and stipulated damages to be paid by the manufacturer ex post in the event of an accident. Although the stipulated damage payments are a potential solution to the moral hazard problem, firms have a private incentive to reduce the stipulated damages (and simultaneously lower the up front price) in order to attract the safer consumers who are less costly to serve. The competitive equilibrium - if an equilibrium exists at all - features suboptimally low stipulated damages and correspondingly suboptimal levels of product safety. Imposing tort liability on manufacturers for uncovered accident losses - and prohibiting private parties from waiving that liability - can improve social welfare.

Number of Pages in PDF File: 42

working papers series


Download This Paper

Date posted: September 23, 2010 ; Last revised: March 13, 2013

Suggested Citation

Choi, Albert H. and Spier, Kathryn E., Should Consumers Be Permitted to Waive Products Liability? Product Safety, Private Contracts, and Adverse Selection (March 8, 2013). Harvard Law and Economics Discussion Paper No. 680. Available at SSRN: http://ssrn.com/abstract=1680932 or http://dx.doi.org/10.2139/ssrn.1680932

Contact Information

Albert H. Choi (Contact Author)
University of Virginia School of Law ( email )
580 Massie Road
Charlottesville, VA 22903
United States

Kathryn E. Spier
Harvard University - Law School - Faculty ( email )
1575 Massachusetts
Hauser 302
Cambridge, MA 02138
United States
(617) 496-0019 (Phone)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Feedback to SSRN


Paper statistics
Abstract Views: 2,234
Downloads: 545
Download Rank: 27,168
References:  90
Citations:  2

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo7 in 0.437 seconds