Intermediate Microeconomics and Its Application 12th Edition by Walter Nicholson,Christopher Snyder

Exercise 12

This example shows that product liability law has a potentially beneficial role to play in improving the allocation of resources to risky products, especially when those risks are not understood by consumers. In actual practice, however, product liability cases have been criticized for yielding wildly differing results and for imposing unrealistic damage assessments on firms. Many observers have suggested that product liability law (and its close relative medical malpractice law) needs to be reformed by tightening up standards of scientific proof and by putting caps on certain types of claims. Achieving the right balance between such restric-tionsand helping markets to internalize harms is no easy task.