Product Tort, Tradeoff between Tort law and Reputation:a Microeconomics Model Supplement
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| Title | Product Tort, Tradeoff between Tort law and Reputation:a Microeconomics Model Supplement
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| Author | Shi Jinchuan,Wang Xiaohui and Wu Xiaoxia |
| Organization | CRPE, College of Zhejiang University; Zhejiang Academy of Social Sciences |
| Email | shijinchuan01@163.com；wxh_tony@163.com；xlzj2009@163.com |
| Key Words | Experience Goods; Product Tort; Product Liability; Reputation; Law and Economics |
| Abstract | The quality of experience goods is unobservable prior to purchase. When the experience goods do not accord with standard of product safety, it often causes damages to the consumer. Informal reputation and formal legal system can inspire manufacturers to increase investment in product quality and safety production in advance, but the literature ignored the "time cost" of reputation and high litigation cost and low litigation rate of tort issues. This paper explores the interaction between reputation and product liability with the assumption that the reputation adjustment evolves a Markovian process of past reputation and the present quality produced. Three conclusions are derived. First, there is a quality-reputation saddle point equilibrium based on the assumptions. Second, the strict product liability can reduce the reputational costs. Third, the equilibrium level of quality and reputation under strict liability are higher than that without product liability law. |
| Serial Number | WP587 |
| Time | 2014-01-28 |
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