Why the Benefit of the Bargain Theory for Product Liability is Bad Law and Bad Economics?

Abstract:     
Plaintiffs are using a new and novel theory to seek compensation for products that have not yet injured them. Such plaintiffs claim that, even though the product they are using has not injured them, the discovery of a potential for injury reveals an actionable form of misrepresentation. The consumers claim they would not have paid the price they paid had they known about the potential for injury, and therefore, the manufacturer has been unjustly enriched. They want the firm to pay back the difference between what they paid and what they would have paid had they known of the potential for harm. This difference is known as the "benefit of the bargain." In this paper, I show that such plaintiffs have no legitimate claim. The nature of the plaintiff's loss is economic in nature. Tort law does not allow recovery for economic losses, except under certain circumstances, none of which are present in the typical sale of a product. Even if plaintiffs were able to recover the "benefit of the bargain," I show that benefit is negligible. Any extra price paid is an insurance premium that the manufacturer collects to compensate consumers in the event of actual injury. Furthermore, given that different consumers value products for different reasons, and not just for the safety factor, measuring what the consumers would have paid had they known a product is unsafe is a speculative venture at best. Looking at some economic studies done on a variety of products, I conclude that the absolute dollar premium that consumers attach to safety for most products is minimal. Hence, any recovery by consumers for the "benefit of the bargain" would be minimal too.

Number of Pages in PDF File: 64

Keywords: Torts, safety law

JEL Classification: K13, K32

working papers series