Product Safety, Buybacks and the Post-Sale Duty to Warn

33 Pages Posted: 9 Nov 2007 Last revised: 6 Sep 2009

Kathryn E. Spier

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

Date Written: September 1, 2009

Abstract

A manufacturer learns a product’s risks after it has been sold and distributed to consumers. When held strictly liable for product-related injuries, the manufacturer offers to repurchase the product when the risk exceeds a threshold. Consumers accept the offer when their private valuations of consumption are smaller than the buyback price. The manufacturer’s private incentives to stage a buyback are insufficient, the buyback price offered is too low, and the continued product usage by consumers is excessive. The ability of the manufacturer to repurchase the product ex post reduces the incentive to design safer products ex ante. A negligence rule, the “post-sale duty to warn,” implements the social welfare benchmark.

Suggested Citation

Spier, Kathryn E., Product Safety, Buybacks and the Post-Sale Duty to Warn (September 1, 2009). Harvard Law and Economics Discussion Paper No. 597. Available at SSRN: https://ssrn.com/abstract=1023125 or http://dx.doi.org/10.2139/ssrn.1023125

Kathryn E. Spier (Contact Author)

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

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