Market Share Liability and its Alternatives
31 Pages Posted: 29 Feb 2000
Date Written: February 15, 2000
An injured party can sometimes identify the class of product that injured her, but not the particular firm that was the source of harm. One possible approach to liability is a rule based on the market shares of the firms. Some commentators have argued that this approach violates the identification requirement and rarely yields efficient incentives for the reduction of harm; their favored alternative apparently is to impose no liability on defendants. While we agree that market share liability will only rarely yield the perfectly efficient solution, a standard of perfect efficiency is unrealistic, since most situations where market share liability is proposed are ones of imperfect information and thus where a perfectly efficient remedy is unobtainable. We compare the efficiency of the market share liability approach to two alternatives: no liability (i.e., victim liability), and multiple joint and several with no contribution that is, placing 100% of the industry's liability on each defendant. We argue that efficiency often dictates increasing liability from the market-share standard, rather than reducing it to zero.
JEL Classification: K13
Suggested Citation: Suggested Citation