Abstract

http://ssrn.com/abstract=939546
 
 

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Mandatory versus Voluntary Disclosure of Product Risks


A. Mitchell Polinsky


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

Steven Shavell


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

October 2006

Stanford Law and Economics Olin Working Paper No. 327
Harvard Law and Economics Discussion Paper No. 564

Abstract:     
We analyze a model in which firms are able to acquire information about product risks and may or may not be required to disclose this information. We initially study the effect of disclosure rules assuming that firms are not liable for the harm caused by their products. Although mandatory disclosure obviously is superior to voluntary disclosure given the information about product risks that firms possess - since such information has value to consumers - voluntary disclosure induces firms to acquire more information about product risks because they can keep silent if the information is unfavorable. The latter effect could lead to higher social welfare under voluntary disclosure. The same results hold if firms are liable for harm under the negligence standard of liability. Under strict liability, however, firms are indifferent about revealing information concerning product risk, and mandatory and voluntary disclosure rules are equivalent.

Number of Pages in PDF File: 33

Keywords: product risk, information, mandatory disclosure, voluntary disclosure, negligence, strict liability

JEL Classification: D18, D62, D82, H23, K13, L15

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Date posted: October 23, 2006  

Suggested Citation

Polinsky, A. Mitchell and Shavell, Steven, Mandatory versus Voluntary Disclosure of Product Risks (October 2006). Stanford Law and Economics Olin Working Paper No. 327; Harvard Law and Economics Discussion Paper No. 564. Available at SSRN: http://ssrn.com/abstract=939546 or http://dx.doi.org/10.2139/ssrn.939546

Contact Information

A. Mitchell Polinsky (Contact Author)
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
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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