The Specific Consumer Expectations Test for Product Defects

50 Pages Posted: 9 Apr 2019

See all articles by Clayton Masterman

Clayton Masterman

Vanderbilt University - Law and Economics, Students

W. Kip Viscusi

Vanderbilt University - Law School; National Bureau of Economic Research (NBER); Vanderbilt University - Department of Economics; Vanderbilt University - Owen Graduate School of Management; Vanderbilt University - Strategy and Business Economics

Date Written: February 18, 2019

Abstract

The consumer expectations test in products liability law holds firms liable for producing goods that are more dangerous than the reasonable consumer would anticipate. But judicial experience in the majority of states that have utilized the consumer expectations test demonstrates that it is ambiguous and impossible to apply in a predictable manner. The test is ill-suited for regulating complex products or markets with heterogeneous consumers; moreover, courts must expend significant resources to identify consumers’ ex ante beliefs about product risks, even when consumers lacked tangible beliefs about products at the time of purchase. The other major test that courts apply to design defects, the risk-utility test, is also not well defined. The several factors of the risk-utility test are difficult for courts to apply consistently and permit courts to overrule the preferences of consumers who may be willing to tolerate higher risks for lower prices.

In this Article, we propose that courts adopt an amended version of the consumer expectations test that we call the “specific consumer expectations test.” The specific consumer expectations test would apply to any product or product component for which consumers have clear, articulable ex ante expectations about the function of the product. Under the specific consumer expectations test, a defendant is liable if consumers expected such a product to reduce a particular risk, and the product in fact increased that risk. Similarly, if a product was intended to convey a particular benefit, but in fact harmed consumers along the same dimension, the test is violated. For example, if defective airbags increased the risk of injury after a motor-vehicle crash rather than decreased the risk, that product would fail the specific consumer expectations test. By shifting the law’s focus from measuring the magnitude of consumer expectations to a simpler identification of the direction that consumers expected risks to change, the specific expectations test increases the administrability of products liability law and captures most of the incentives that the traditional consumer expectations test could theoretically provide. In particular, firms are incentivized to produce products that never increase risks unexpectedly, and consumers are empowered to purchase products which reflect their willingness to pay for risks. In cases where consumers lack specific expectations, courts should apply the risk-utility test to minimize unanticipated accident costs to consumers and firms.

We bolster our analysis with a novel experiment that demonstrates that the specific expectations test is consistent with the preferences of actual consumers. Our incentive-compatible experiment asked subjects to make consumption decisions over various risky products and determine punishments for the firms that manufacture defective products. The results reveal that individuals demand substantially greater punishments for firms that produce products that violate specific expectations. But, before the defect has been manifested, consumers are willing to tolerate prospective defect risks in general as well as defects that would cause a product to perform the opposite of its intended function. It is after the defect has occurred that consumers display their much greater outrage with respect to product defects that impose harms that are the opposite of the intended function of the product or product component. Taken together, these results indicate that the specific expectations test would deter manufacturers from making defective products in the exact circumstances where consumers suffer the greatest harms from product defects, and the test would permit consumers to choose when to consume dangerous products without producers risking ex post liability.

Keywords: products liability, consumer expectations, tort law, experiment

JEL Classification: K13, K32, D91, D81

Suggested Citation

Masterman, Clayton and Viscusi, W. Kip, The Specific Consumer Expectations Test for Product Defects (February 18, 2019). Indiana Law Journal, Forthcoming; Vanderbilt Law Research Paper No. 19-08. Available at SSRN: https://ssrn.com/abstract=3352125

Clayton Masterman

Vanderbilt University - Law and Economics, Students ( email )

Nashville, TN
United States

W. Kip Viscusi (Contact Author)

Vanderbilt University - Law School ( email )

131 21st Avenue South
Nashville, TN 37203-1181
United States
615-343-7715 (Phone)
615-322-5953 (Fax)

HOME PAGE: http://law.vanderbilt.edu/faculty/viscusi.htm

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Vanderbilt University - Department of Economics

Box 1819 Station B
Nashville, TN 37235
United States
(615) 343-7715 (Phone)
(615) 343-5953 (Fax)

HOME PAGE: http://law.vanderbilt.edu/faculty/viscusi.htm

Vanderbilt University - Owen Graduate School of Management

401 21st Avenue South
Nashville, TN 37203
United States
(615) 343-7715 (Phone)
(615) 343-5953 (Fax)

HOME PAGE: http://law.vanderbilt.edu/faculty/viscusi.htm

Vanderbilt University - Strategy and Business Economics ( email )

Nashville, TN 37203
United States

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