The Uneasy Case for Product Liability

Article excerpt

TABLE OF CONTENTS

I.    INTRODUCTION                                              1438

II.   THE SAFETY BENEFIT OF PRODUCT LIABILITY                   1443

      A. Incentives To Reduce Product Risk Generated by Market  1443
         Forces

      B. Regulation of Product Risk                             1450

      C. Risk Reduction Accomplished by Product Liability       1453

III.  THE PRICE-SIGNALING BENEFIT OF PRODUCT LIABILITY          1459

      A. Price-Signaling and Consumer Information               1459

      B. Price-Signaling and First-Party Insurance              1461

IV.   THE COMPENSATION BENEFIT OF PRODUCT LIABILITY             1462

      A. Compensation Accomplished by Insurance                 1462

      B. Compensation Accomplished by Product Liability         1463

      C. The Social Desirability of the Compensation
         Accomplished

         by Product Liability                                   1465

V.    THE COSTS OF PRODUCT LIABILITY                            1469

      A. Legal Expenses                                         1469

      B. Price Distortions                                      1470

VI.   IS PRODUCT LIABILITY SOCIALLY WORTHWHILE GIVEN

      ITS BENEFITS AND COSTS?                                   1472

      A. Product Liability for Widely Sold Products             1472

      B. Product Liability for Products That Are Not Widely     1476
         Sold

VII.  THE PREVAILING SOCIAL ENDORSEMENT OF PRODUCT LIABILITY    1476

      A. Judicial Opinions                                      1476

      B. Academic Writing                                       1483

      C. Public Commentary                                      1487

VIII. THE CONTRAST BETWEEN PRODUCT LIABILITY AND

      LIABILITY TO STRANGERS                                    1490

IX.   CONCLUSION                                                1491

I. INTRODUCTION

The liability of manufacturers of products for harms caused to their customers--product liability (1)--has great prominence in the United States. Tens of thousands of product liability cases are filed annually in state and federal courts, including some as class or other mass tort actions that can involve thousands or even millions of individuals as plaintiffs. (2) The legal bases for product liability suits are expansive, comprising liability for manufacturing defect, design defect, and failure to warn. (3) Product liability cases receive significant attention from the media, especially when they concern widely sold products that harm many consumers. (4) Moreover, product liability is of growing importance outside of the United States, particularly in the European Union and in Asia. (5)

Perhaps surprisingly, no one to our knowledge has attempted to examine the question whether, or in what circumstances, product liability is socially desirable, considering its major benefits and costs. (6) We undertake this task here and come to the judgment that the case for product liability is problematic for a wide range of products. The essence of our argument is that the three beneficial effects of product liability--inducing firms to improve product safety, causing prices of products to reflect their risks, and providing compensation to injured consumers--are, for many products, likely to be outweighed by the litigation and related costs of product liability. (7)

We discuss the influence of product liability on product safety in Part II of the Article. To assess this effect, it is necessary to consider whether firms would have an incentive to make safe products even in the absence of product liability. One reason that firms might have such an incentive concerns market forces, namely, that their sales may fall if their products harm consumers or are viewed as unduly risky, or that their sales may rise if their products are seen as particularly safe. …