NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Does Accuracy Improve the Information Value of Trials?

Scott A. Baker, Anup Malani

NBER Working Paper No. 17036
Issued in May 2011
NBER Program(s):   LE

We develop a model where products liability trials provide information to consumers who are not parties to the litigation. Consumers use this information to take precautions against dangerous products. A critical assumption is that consumers cannot differentiate between firms that have never been sued and firms that have been sued but settled out of court. In this framework, we show that perfectly accurate courts do not maximize information to consumers and thus welfare, contrary to Kaplow and Shavell (1994). More accurate courts provide more information only if producers go to trial. Greater accuracy, however, encourages producers of dangerous products to settle and hide their type. When courts are perfectly accurate, all low quality producers settle. And given the lack of any information from trials about bad types, consumers (rationally) fail to take precautions. If consumer precautions are relatively more efficient than producer precautions, our conclusion stands even when firms can invest in improving the safety of their products.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Information about Free Papers

You should expect a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

This paper was revised on December 5, 2011

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX

Users who downloaded this paper also downloaded these:
Gourio w17026 Credit Risk and Disaster Risk
Ashraf and Galor w17037 Dynamics and Stagnation in the Malthusian Epoch
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us