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The more the merrier? Disciplinary actions against malpractice

Author

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  • Hatsor, Limor
  • Jelnov, Artyom

Abstract

In a world of experience goods, two costly ex-post disciplinary actions can be used against malpractice of firms: consumer lawsuits and government investigation. We distinguish between government exectiveness in detecting 'bad behavior' vs. 'good behavior' of firms - both play a key role in the model. Our results suggest that while an exective government eliminates malpractice completely, the intervention of an ineffective government may backfire, failing to protect the product safety. The reason is that on top of its inexectiveness, the government may deter consumers from pursuing lawsuits (crowding-out), augmenting the malpractice of firms compared to an equilibrium without government intervention. Additionally, an improvement in government ability to detect 'bad behavior' should be complemented by a reduction of lawsuit cost or an improvement in the ability to detect 'good behavior' in order to restore consumer incentive to pursue lawsuits.

Suggested Citation

  • Hatsor, Limor & Jelnov, Artyom, 2024. "The more the merrier? Disciplinary actions against malpractice," MPRA Paper 122433, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:122433
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    More about this item

    Keywords

    Managerial Decision Economics;

    JEL classification:

    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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