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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.
Other publications by this author
- An Introduction to Law and Economics. Fourth Edition
- A Skeptical Attitude about Product Liability is Justified
- A Skeptical Attitude About Product Liability is Justified
- The Uneasy Case for Product Liability
- Public Enforcement of Law
- Punitive Damages
- The Optimal Tradeoff between the Probability and Magnitude of Fines
- Public Enforcement of Law
- Law and Economics
- Handbook of Law and Economics
Author
- A. Mitchell Polinsky
- Stanford Law School
- polinsky@stanford.edu
- 650 723.0886