Should Products Liability Be Based on Past or Present Scientific Knowledge?
Posted: 23 Jun 1997
Date Written: May 1997
Abstract
In designing and marketing new products, manufacturers face uncertainty regarding the harmful character of their products. If harm occurs due to a defective design, liability is imposed on manufacturers whenever the design of the product is determined to be unreasonably dangerous. In assessing the reasonableness of a design, courts often -- although the doctrine is not settled -- admit information which was acquired throughout the actual usage of the product -- information that often was not scientifically available at the time of production. The Asbestos litigation is a prominent example of this practice. This paper examines the incentive effects of such hindsight. It demonstrates that the utilization of information that is available ex post but was not available ex ante may lead to adverse incentive effects, (1) in installing safety devices in products, (2) in developing technologies that are less risky, and (3) in investing in research that can identify the risks in advance; yet it unambiguously improves incentives to make safety adjustments subsequent to the distribution of the product. While the overall welfare effect of hindsight in assessing liability is ambiguous, the paper demonstrates that it may reduce the utility of consumers and manufacturers alike.
JEL Classification: K13
Suggested Citation: Suggested Citation