Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/67722
Authors: 
Baumann, Florian
Friehe, Tim
Year of Publication: 
2012
Series/Report no.: 
DICE Discussion Paper 80
Abstract: 
This paper establishes that tort damages multipliers higher than one can be an instrument to induce imperfectly competitive producers to invest in product safety at socially optimal levels. In their selection of product safety levels, producers seek to maximize profits, neglecting the fact that higher investment in product safety increases consumer welfare; the discrepancy between private and social safety incentives can be remedied by setting damages multipliers to values greater than one. We show that the optimal damages multiplier depends on the characteristics of competition, such as the number of firms, the degree of substitutability/complementarity when products are heterogeneous, firms' cost structures, and the mode of competition.
Subjects: 
product liability
product safety
market power
level of damages
punitive damages
JEL: 
K13
H23
ISBN: 
978-3-86304-079-6
Document Type: 
Working Paper

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