Probing the case for manufacturer liability for harms caused by judgment-proof consumers to others

We study whether it is socially desirable to hold a monopolistic firm liable for the harm its potentially judgment-proof consumers inflict on third parties. Consumers' judgment-proofness limits potential product differentiation by pooling different consumer types with uniform liability exposure...

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Bibliographic Details
Published in:European journal of law and economics 2023-12, Vol.56 (3), p.443-460
Main Authors: Friehe, Tim, Rössler, Christoph, Schulte, Elisabeth
Format: Article
Language:English
Subjects:
Commercial Law
Consumer
Consumers
Differentiation
Economics
Economics and Finance
European Integration
Independent contractors
Judgment proofness
Law and Economics
Liability
Precaution
Product differentiation
Product safety
Public Finance
Safety
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Summary:We study whether it is socially desirable to hold a monopolistic firm liable for the harm its potentially judgment-proof consumers inflict on third parties. Consumers' judgment-proofness limits potential product differentiation by pooling different consumer types with uniform liability exposure. The firm's safety choices are distorted in both regimes under consideration: consumer-only liability and residual-manufacturer liability. We find that residual-manufacturer liability dominates consumer-only liability if the monopolistic firm can observe consumers' types, or if consumers' types are not observable but heterogeneity stems only from their asset levels. However, if the monopolistic firm cannot observe consumers' types and heterogeneity stems from their harm levels, it is more difficult to make a case for residual-manufacturer liability.
ISSN:1572-9990
0929-1261
1572-9990
1572-9346
DOI:10.1007/s10657-023-09786-5