Imperfect Information, Costly Litigation, and Product Quality

Marilyn J. Simon
1981 The Bell Journal of Economics  
Imperfect Information, Costly Litigation and Product Quality" Marilyn Simon In this paper, the effect of costly litigation and imperfect information on the quality of output is examined. An equilibrium is described in which consumers are uncertain about the result of a law suit. It is found that, for a wide range of due care standards, there will be both negligent and non-negligent firms in the market. Furthermore, as the population becomes more risk averse, the proportion of output which is
more » ... output which is produced by negligent firms increases. If absolute risk aversion decreases as income increases, the reliance on litigation to control product quality and workplace safety will have undesirable distributional effects. I.
doi:10.2307/3003515 fatcat:dpe5xnvrebc2hlv6j4bgmxisb4