The nature and likelihood of harms associated with products may be revealed over time. As more information is gathered, a manufacturer must decide whether to continue selling the product as is, or to recall it. The paper shows that existing products liability law gives the manufacturers bad incentive to recall products. It shows, counter-intuitively, that as the post-recall liability becomes more severe, manufacturers would be more likely to leave products in the market longer and more often than is socially desirable. It also demonstrates that the law hurts the incentives of manufacturers to acquire better information about the riskiness of products already in use. The paper discusses several ways in which liability can be designed in a way that would produce more efficient recall and safety-research decisions, to the benefit of society in general and of consumers in particular.
Injury and Tort Law | Law and Economics
Date of this Version
Omri Ben-Shahar, "How Liability Distorts Incentives of Manufacturers to Recall Products" (January 2005). University of Michigan Program in Law and Economics Archive: 2003-2009. Working Paper 37.