Products Liability When Consumers Vary In Their Susceptibility To Harm And May Misperceive Risk

type="main" xml:id="coep12086-abs-0001"> This article examines products liability when consumers have private information about their susceptibilities to product-related harm. In this case, it is efficient for consumers to self-select their purchases, with those especially prone to harm refraining from purchase. Achieving this outcome requires consumers to bear their own harm, given that producers cannot observe consumer types. When consumers also misperceive risk, the problem becomes more complicated because accurate signaling of risk requires that firms bear liability. A trade-off therefore emerges between imposing liability on firms versus consumers. This article characterizes the choice among liability rules in the presence of this trade-off . ( JEL K13, L15)