Arbeitspapier
Optimal Liability when Consumers Mispredict Product Usage
We contrast alternative liability rules for social control of product risks when heterogeneous consumers considering purchasing a durable good due to cognitive errors and biases mispredict future product benefits and, thus, the extent of future product usage. Since the expected consumer harm directly depends on the level of product usage, the consequences of consumers’ mispredictions vary with the prevailing liability regime. We first characterize the consumers’ purchasing decision and the equilibrium levels of safety and activity from the product’s usage under no liability, strict liability, and negligence rule. We then compare the three legal regimes from the social welfare standpoint. Our analysis clarifies why and how the choice of the socially optimal legal regime depends on the distribution of consumers based on the direction and extent of their mispredictions. When consumers are susceptible to mispredicting future product benefits and usage, the appropriate legal regime is likely product-specific.
- Language
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Englisch
- Bibliographic citation
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Series: CESifo Working Paper ; No. 5903
- Classification
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Wirtschaft
Tort Law and Product Liability; Forensic Economics
Allocative Efficiency; Cost-Benefit Analysis
- Subject
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misprediction
activity
durable consumer products
product risk
liability rules
- Event
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Geistige Schöpfung
- (who)
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Baniak, Andrzej
Grajzl, Peter
- Event
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Veröffentlichung
- (who)
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Center for Economic Studies and ifo Institute (CESifo)
- (where)
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Munich
- (when)
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2016
- Handle
- Last update
-
10.03.2025, 11:42 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Baniak, Andrzej
- Grajzl, Peter
- Center for Economic Studies and ifo Institute (CESifo)
Time of origin
- 2016
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