Controlling Product Risks When Consumers are Heterogeneously Overconfident: Producer Liability vs. Minimum Quality Standard Regulation

34 Pages Posted: 24 Sep 2014

See all articles by Andrzej Baniak

Andrzej Baniak

Central European University (CEU) - Department of Economics

Peter Grajzl

Washington and Lee University - Department of Economics; CESifo

Multiple version iconThere are 2 versions of this paper

Date Written: September 22, 2014

Abstract

Contributing to the literature on the consequences of behavioral biases for market outcomes and institutional design, we contrast producer liability and minimum quality standard regulation as alternative means of social control of product-related torts when consumers are heterogeneously overconfident about the risk of harm. We elucidate the role of factors shaping the relative desirability of strict liability vis-à-vis minimum quality standard regulation from a social welfare standpoint. We also clarify when and why joint use of strict liability and minimum quality standard regulation welfare dominates the exclusive use of either mode of social control of torts.

Keywords: product risk, overconfidence, consumer heterogeneity, tort law, minimum quality standard

JEL Classification: K13, L51, D81, D03

Suggested Citation

Baniak, Andrzej and Grajzl, Peter, Controlling Product Risks When Consumers are Heterogeneously Overconfident: Producer Liability vs. Minimum Quality Standard Regulation (September 22, 2014). Available at SSRN: https://ssrn.com/abstract=2499596 or http://dx.doi.org/10.2139/ssrn.2499596

Andrzej Baniak

Central European University (CEU) - Department of Economics ( email )

Nador u. 9.
Budapest H-1051
Hungary
(36) 1 327-3231 (Phone)
(36) 1 327-3232 (Fax)

Peter Grajzl (Contact Author)

Washington and Lee University - Department of Economics ( email )

Lexington, VA 24450
United States

HOME PAGE: http://home.wlu.edu/~grajzlp/

CESifo ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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