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Taxation, Fines, and Producer Liability Rules: Efficiency and Market Structure Implications

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  • Stephen F. Hamilton

Abstract

This paper analyzes the comparative efficiency of producer liability rules and regulatory policy in short‐run and long‐run competitive equilibria with endogenous product safety. Pigouvian taxes on output and safety provision fail to achieve the long‐run social optimum. An appropriately designed policy involving fines on accidents and subsidies on safety provision achieves efficiency; however, the optimal policy may involve the taxation, not the subsidization, of product safety. Tort liability also leads to efficient outcomes but may be associated with perverse structural changes. For example, increased liability exposure may induce de novo entry in hazardous sectors, even with fully capitalized firms.

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  • Stephen F. Hamilton, 1998. "Taxation, Fines, and Producer Liability Rules: Efficiency and Market Structure Implications," Southern Economic Journal, John Wiley & Sons, vol. 65(1), pages 140-150, July.
    • Handle: RePEc:wly:soecon:v:65:y:1998:i:1:p:140-150
    DOI: 10.1002/j.2325-8012.1998.tb00133.x
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    1. Dennis W. Carlton & Glenn C. Loury, 1980. "The Limitations of Pigouvian Taxes as a Long-Run Remedy for Externalities," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 95(3), pages 559-566.
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    4. Hamada, Koichi, 1976. "Liability Rules and Income Distribution in Product Liability," American Economic Review, American Economic Association, vol. 66(1), pages 228-234, March.
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    7. Kolstad, Charles D & Ulen, Thomas S & Johnson, Gary V, 1990. "Ex Post Liability for Harm vs. Ex Ante Safety Regulation: Substitutes or Complements?," American Economic Review, American Economic Association, vol. 80(4), pages 888-901, September.
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    Cited by:

    1. Stéphan Marette & Estelle Gozlan & Bénédicte Coestier, 2005. "On the Limitation of Penalties and the Non-Equivalence of Penalties and Taxes," European Journal of Law and Economics, Springer, vol. 19(1), pages 135-151, January.
    2. Ram Singh, 2009. "RISK, INFORMATIONAL ASYMMETRY AND PRODUCT LIABILITY: An Enquiry Into Conflicting Objectives," Pacific Economic Review, Wiley Blackwell, vol. 14(1), pages 89-112, February.
    3. Bruce Hay & Kathryn E. Spier, 2004. "Manufacturer Liability for Harms Caused by Consumers to Others," NBER Working Papers 10972, National Bureau of Economic Research, Inc.
    4. Bruce Hay & Kathryn E. Spier, 2005. "Manufacturer Liability for Harms Caused by Consumers to Others," American Economic Review, American Economic Association, vol. 95(5), pages 1700-1711, December.
    5. Eric Langlais & Nanxi Li, 2024. "Which Liability Laws for Artificial Intelligence?," Working Papers hal-04638448, HAL.

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