Mandatory versus Voluntary Disclosure of Product Risks

33 Pages Posted: 23 Oct 2006  

A. Mitchell Polinsky

Stanford Law School; National Bureau of Economic Research (NBER)

Steven Shavell

Harvard Law School; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: October 2006

Abstract

We analyze a model in which firms are able to acquire information about product risks and may or may not be required to disclose this information. We initially study the effect of disclosure rules assuming that firms are not liable for the harm caused by their products. Although mandatory disclosure obviously is superior to voluntary disclosure given the information about product risks that firms possess - since such information has value to consumers - voluntary disclosure induces firms to acquire more information about product risks because they can keep silent if the information is unfavorable. The latter effect could lead to higher social welfare under voluntary disclosure. The same results hold if firms are liable for harm under the negligence standard of liability. Under strict liability, however, firms are indifferent about revealing information concerning product risk, and mandatory and voluntary disclosure rules are equivalent.

Keywords: product risk, information, mandatory disclosure, voluntary disclosure, negligence, strict liability

JEL Classification: D18, D62, D82, H23, K13, L15

Suggested Citation

Polinsky, A. Mitchell and Shavell, Steven, Mandatory versus Voluntary Disclosure of Product Risks (October 2006). Stanford Law and Economics Olin Working Paper No. 327; Harvard Law and Economics Discussion Paper No. 564. Available at SSRN: https://ssrn.com/abstract=939546 or http://dx.doi.org/10.2139/ssrn.939546

A. Mitchell Polinsky (Contact Author)

Stanford Law School ( email )

559 Nathan Abbott Way
Stanford, CA 94305-8610
United States
650-723-0886 (Phone)
650-723-3557 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Steven Shavell

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Harvard Law School ( email )

1575 Massachusetts
Hauser 406
Cambridge, MA 02138
United States
617-495-3668 (Phone)
617-496-2256 (Fax)

Paper statistics

Downloads
592
Rank
32,730
Abstract Views
2,368