Smart Instrument Mixes to Deal with Legal but Unhealthy Products and Services: An Economic Approach

Abstract

Many of today’s products and services fall into the category of products and services that are, as such, legal but still unhealthy. Think of smoking as an example. This paper deals with the question of which mix of legal instruments should ideally be used in the light of such products and services. It distinguishes between products and services that predominantly lead to “harm to oneself” or “harm to others”. In the end, most law and economics arguments point in the direction of ex ante safety regulation. However, when there are concerns about the quality of regulation (eg due to lobbying efforts), liability has important added value. In the “harm to others” scenario, safety regulation is even more warranted because the larger number of victims and the increased difficulty to prove the causal link render litigation burdensome. Strict liability has several advantages over negligence and is, therefore, generally preferred. A strong point of negligence, however, is that it enables the court to conduct its own weighing of costs and benefits, which in specific circumstances may be better than that of the regulator or the producer. Furthermore, it enables the judge to consider not only the harm to the user, but also the harm to others in setting the due care standard.