Edited by Jennifer H. Arlen
Chapter 3: Economic analysis of products liability: Theory
This chapter provides a survey of much of the recent theoretical economic analysis of products liability. Products liability law applies to situations wherein victims and injurers have a prior relationship as buyers and sellers of a product or service (it may also address harms to other victims who are third parties). Thus, the market may provide an alternative mechanism (to litigation) for shifting risks and costs between these agents. A comprehensive analysis of products liability necessitates consideration of both the market and legal incentives agents face. As discussed below, this body of literature has developed over the past three to four decades and has applied tools from micro economic analysis to understand the incentives inherent in tort law generally, and products liability more specifically.
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