A Note on the Optimality of (Even More) Incomplete Strict Liability

6 Pages Posted: 8 Apr 2014

See all articles by Florian Baumann

Florian Baumann

University of Tuebingen - Faculty of Economics and Business Administration

Tim Friehe

University of Konstanz - Department of Economics

Kristoffel R. Grechenig

Max-Planck-Institute for Research on Collective Goods

Date Written: 2011

Abstract

This paper starts from the premise that liability is incomplete and establishes that firms may nevertheless invest excessively in care. This may justify a (further) reduction in the level of liability from a social standpoint, thereby arguing against seeking to approach full compensation as close as possible. In our framework, firms are liable under product liability, but also invest in care to prevent consumers’ switching to competitors. Affecting the partition of consumers by means of care-taking is not desirable from a social standpoint. Consequently, it may be optimal to reduce liability below a given level of incomplete compensation in order to adjust firms’ care incentives.

Keywords: Tort law, Product liability, Care level, Incomplete compensation, Market forces

JEL Classification: H26, K13

Suggested Citation

Baumann, Florian and Friehe, Tim and Grechenig, Kristoffel R., A Note on the Optimality of (Even More) Incomplete Strict Liability (2011). International Review of Law and Economics, Vol. 31, No. 2, 2011, Available at SSRN: https://ssrn.com/abstract=2420660

Florian Baumann

University of Tuebingen - Faculty of Economics and Business Administration ( email )

Mohlstrasse 36
D-72074 Tuebingen, 72074
Germany

Tim Friehe

University of Konstanz - Department of Economics ( email )

Konstanz, D-78457
Germany

Kristoffel R. Grechenig (Contact Author)

Max-Planck-Institute for Research on Collective Goods ( email )

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany
+49 228 91416-51 (Phone)
+49 228 91416-851 (Fax)

HOME PAGE: http://sites.google.com/site/kristoffelgrechenig

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