Rössler and Friehe, ‘Liability, morality, and image concerns in product accidents with third parties’

ABSTRACT
This paper explores how consumers’ moral and image concerns influence the equilibrium in a product-accident model in which third parties incur harm. We differentiate results according to whether the product is supplied by a monopolistic firm or competitive ones. Assuming incomplete compensation of third parties, we find that both moral and image concerns of consumers increase product safety in the context of a competitive market, while the monopolist’s product safety level varies exclusively with consumers’ morality. Comparing market outcomes, we find that the monopolist’s product safety levels may induce greater welfare than a competitive industry.

Christoph Rössler and Tim Friehe, Liability, morality, and image concerns in product accidents with third parties, European Journal of Law and Economics, volume 50, pages 295-312 (2020). Published: 5 August 2020.

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