Products Liability When Consumers Vary in Their Susceptibility to Harm and May Misperceive Risk

9 Pages Posted: 14 May 2015

See all articles by Thomas J. Miceli

Thomas J. Miceli

University of Connecticut - Department of Economics

Kathleen Segerson

University of Connecticut - Department of Economics

Suo Wang

University of Chicago

Date Written: July 2015

Abstract

This article examines products liability when consumers have private information about their susceptibilities to product-related harm. In this case, it is efficient for consumers to self-select their purchases, with those especially prone to harm refraining from purchase. Achieving this outcome requires consumers to bear their own harm, given that producers cannot observe consumer types. When consumers also misperceive risk, the problem becomes more complicated because accurate signaling of risk requires that firms bear liability. A trade-off therefore emerges between imposing liability on firms versus consumers. This article characterizes the choice among liability rules in the presence of this trade-off.

JEL Classification: K13, L15

Suggested Citation

Miceli, Thomas J. and Segerson, Kathleen and Wang, Suo, Products Liability When Consumers Vary in Their Susceptibility to Harm and May Misperceive Risk (July 2015). Contemporary Economic Policy, Vol. 33, Issue 3, pp. 468-476, 2015. Available at SSRN: https://ssrn.com/abstract=2605217 or http://dx.doi.org/10.1111/coep.12086

Thomas J. Miceli (Contact Author)

University of Connecticut - Department of Economics ( email )

365 Fairfield Way, U-1063
Storrs, CT 06269-1063
United States
860-486-5810 (Phone)
860-486-4463 (Fax)

Kathleen Segerson

University of Connecticut - Department of Economics ( email )

365 Fairfield Way, U-1063
Storrs, CT 06269-1063
United States
860-486-4567 (Phone)
860-486-4463 (Fax)

Suo Wang

University of Chicago ( email )

1101 East 58th Street
Chicago, IL 60637
United States

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