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The Uneasy Case for Product Liability

Oct 2009
Policy Brief
By  A. Mitchell Polinsky, Steven Shavell

The benefits of product liability appear to be outweighed by its costs. First, product liability has not been found to have improved product safety in a significant way. This may be because firms have reasons to enhance product safety even in the absence of product liability: Their sales are likely to fall if they harm consumers, and they are often subject to safety regulation. Second, product liability does not substantially promote desirable compensation, especially because accident victims already often receive compensation from their insurers. Product liability is, however, very costly. Consequently, we conclude that the case for product liability is not strong, particularly for widely sold products, with respect to which market forces and regulation are relatively effective.