Abstract

http://ssrn.com/abstract=1967676
 
 

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Cumulative Harm and Resilient Liability Rules for Product Markets


Andrew F. Daughety


Vanderbilt University - College of Arts and Science - Department of Economics; Vanderbilt University - Law School

Jennifer F. Reinganum


Vanderbilt University - College of Arts and Science - Department of Economics; Vanderbilt University - Law School

December 2, 2011


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.

Number of Pages in PDF File: 61

Keywords: Products liability, strict liability, negligence, cumulative harm, product quality

JEL Classification: K13, L13, L15

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Date posted: December 3, 2011 ; Last revised: December 10, 2011

Suggested Citation

Daughety, Andrew F. and Reinganum, Jennifer F., Cumulative Harm and Resilient Liability Rules for Product Markets (December 2, 2011). Available at SSRN: http://ssrn.com/abstract=1967676 or http://dx.doi.org/10.2139/ssrn.1967676

Contact Information

Andrew F. Daughety (Contact Author)
Vanderbilt University - College of Arts and Science - Department of Economics ( email )
Box 1819 Station B
Nashville, TN 37235
United States
615-322-3453 (Phone)
615-343-8495 (Fax)
Vanderbilt University - Law School
131 21st Avenue South
Nashville, TN 37203-1181
United States
Jennifer F. Reinganum
Vanderbilt University - College of Arts and Science - Department of Economics ( email )
Box 1819 Station B
Nashville, TN 37235
United States
615-322-2937 (Phone)
615-343-8495 (Fax)
Vanderbilt University - Law School
131 21st Avenue South
Nashville, TN 37203-1181
United States
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References:  13

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