Controlling Product Risks when Consumers Are Heterogeneously Overconfident: Producer Liability versus Minimum-Quality-Standard Regulation

Contributing to the literature on the consequences of behavioral biases for market outcomes and institutional design, we contrast producer liability and minimum-quality-standard regulation as alternative means of social control of product-related torts when consumers are heterogeneously overconfident about the risk of harm. We elucidate the role of factors shaping the relative desirability of strict liability vis-à-vis minimum-quality-standard regulation from a social welfare standpoint. We also clarify when and why joint use of strict liability and minimum-quality-standard regulation welfare dominates the exclusive use of either mode of social control of torts.