Liability or Labeling? Regulating Product Risks with Costly Consumer Attention

35 Pages Posted: 24 Sep 2014 Last revised: 19 Aug 2018

See all articles by Maria Arbatskaya

Maria Arbatskaya

Maria Vyshnya Aslam

Centers for Disease Control and Prevention; Emory University - Oxford College

Date Written: August 10, 2018

Abstract

This paper examines the liability and labeling approaches to regulating product safety. Stronger product liability increases producer care, which then has a negative lulling effect on consumer attention to warning labels. By contrast, more visible warning labels increase such consumer care, which then has a positive vigilance effect on producer care. Information campaigns educating consumers about product risks generate a similar vigilance effect. This happens because consumers view producer care and consumer care levels as strategic substitutes, while the firm views them as strategic complements. We argue that when a public policy is chosen, the endogeneity of consumer attention to warnings is not to be overlooked.

Keywords: warning labels, search, disclosure, product liability

JEL Classification: K13, L15, L13, D83

Suggested Citation

Arbatskaya, Maria and Aslam, Maria Vyshnya, Liability or Labeling? Regulating Product Risks with Costly Consumer Attention (August 10, 2018). Available at SSRN: https://ssrn.com/abstract=2499863 or http://dx.doi.org/10.2139/ssrn.2499863

Maria Vyshnya Aslam

Centers for Disease Control and Prevention ( email )

1600 Clifton Rd. MS E-07
Atlanta, GA 30329-4027
United States
404-639-5396 (Phone)

Emory University - Oxford College

810 Whatcoat Street
Oxford, GA 30054
United States

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