Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/297785 
Year of Publication: 
2023
Series/Report no.: 
Serie Documentos de Trabajo No. 856
Publisher: 
Universidad del Centro de Estudios Macroeconómicos de Argentina (UCEMA), Buenos Aires
Abstract: 
The central hypothesis of this article is that liability regulation can foster firms' incentives to study the (potential) dangers of their products. We discuss alternative views and develop a formal model to analyze a firm's incentive structure under the application of hindsight liability. We find a new role for liability regulation: to foster voluntary investment in research aimed at detecting potential risks in new products. The model allows us to analyze the firm's investment decisions in research under different scenarios, each of which has varying expected costs. We offer some alternatives for institutional design seeking incentive compatibility with the aim proposed.
Subjects: 
risk
regulation
product liability
incentives
asymmetric information
JEL: 
K12
K22
Document Type: 
Working Paper

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