Abstract
This paper examines the effects of product liability costs on R&D with asymmetric information. When the product is defective, both the consumer and producer share the resulting losses. This paper explores the impacts of liability costs on the firm’s R&D decisions in three information structures: full information; hidden information; and hidden information and hidden action. It is found that the effects differ across information structures. This paper also compares the equilibrium amounts of R&D and social welfare levels across three cases. Equilibrium R&D is smaller than the socially optimal level for each information structure.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
