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Journal of Law, Economics, and Organization Advance Access published online on October 9, 2009
Journal of Law, Economics, and Organization, doi:10.1093/jleo/ewp029
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© The Author 2009. Published by Oxford University Press on behalf of Yale University. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org

Product Safety, Buybacks, and the Post-Sale Duty to Warn

Kathryn E. Spier*

Harvard Law School

* Harvard Law School and National Bureau of Economic Research, 1563 Massachusetts Avenue, Cambridge, MA 02138. Email: kspier{at}law.harvard.edu.

A manufacturer learns a product's risks after it has been sold and distributed to consumers. When held strictly liable for product-related injuries, the manufacturer offers to repurchase the product when the risk exceeds a threshold. Consumers accept the offer when their private valuations of consumption are smaller than the buyback price. The manufacturer's private incentives to stage a buyback are insufficient, the buyback price offered is too low, and the continued product usage by consumers is excessive. The ability of the manufacturer to repurchase the product ex post reduces the incentive to design safer products ex ante. A negligence rule, the "post-sale duty to warn," implements the social welfare benchmark. (JEL K13, D18, L15, D82)

Accepted for publication August 24, 2009.


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