Uneasy Case for Product Liability, The

Innovation and Economic Growth

Article Snapshot

Author(s)

A. Mitchell Polinsky and Steven M. Shavell

Source

Harvard Law Review, Vol. 123, No. 6, April 2010

Summary

Argues that product liability analyses have been insufficient and that product liability may not be socially desirable.

Policy Relevance

Product liability has been widely adopted as a socially beneficial means for fairness; however, certain economic costs and other means of compensation have been ignored. Consequently, product liability should be reconsidered as to its benefits, especially regarding widely sold products.

Main Points

  • The data suggest that product liability has had a very limited influence on product safety, particularly for widely sold products because market forces and regulation already force manufacturers to make safe products.
     
  • A case can be made that product liability confers a positive benefit to society because it creates strong price signaling to consumers. The increased cost caused by product liability alerts consumers to the dangerous nature of certain products.
     
  • However, the price signaling benefit to consumers is negated when the high costs of litigation are recognized and also by the fact that consumers must be substantially overestimating or underestimating product costs for the price signaling effect to be meaningful.
     
  • The compensation benefit accrued through product liability is minimal.

    • Most Americans have insurance that defrays a significant portion of their loss, thus product liability only incrementally increases that compensation, and the value to the consumer is lowered.
       
    • Insurers typically have the right to receive legal settlement payments after they pay insurance claims, which further reduces product liability benefits to the consumer.
       
  • Product liability causes consumers to effectively pay a higher price for a product because it includes the pain and suffering component of the tort claim. This is a cost that most consumers prefer not insure against, and therefore they pay for something in a product they do not want.
     
  • The social benefit that has been accorded to product liability by courts, academics, and the media has failed to consider the true costs and safety benefits that this evidence suggests.
     
  • Product liability ought to be reevaluated regarding its social desirability because there is not a strong case supporting its use in widely sold products. Furthermore, any price signaling benefits and compensation benefits may not even be large enough to justify its imposition in products not widely sold.
     

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