Citation

Sunding DL, Zilberman D. Int. Rev. Law Econ. 1998; 18(1): 1-11.

Copyright

(Copyright © 1998, Elsevier Publishing)

DOI

10.1016/S0144-8188(97)00053-7

PMID

unavailable

Abstract

Economists have established the efficiency of strict producer liability when markets are competitive, and they also have shown that producer liability is inefficient when the good is produced by a monopolist. This paper considers the efficiency of various liability rules in a multimarket model with three types of entities: firms producing a hazardous product; firms producing a final good using the hazardous product as an input; and consumers. When input and output markets are competitive and there is complete capitalization, assigning liability to either producers or users of the hazardous material is efficient. However, when the input market is monopolistic, we demonstrate that producer liability is more efficient than user liability when marginal liability is increasing in the level of output. No liability may also generate the most efficient resource allocation in some circumstances.