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ABSTRACT. Firms that wish to be morally responsible in providing products that meet a high standard of safety may face problems competing against firms that make unsafe products and sell these products at cheap prices; these problems may be compounded when consumers do not accurately process information about safety and risk. This paper presents a conceptual argument that the tort system may serve to promulgate information which makes it feasible for firms to market safe products even in the face of these competitive obstacles.
To corroborate the conceptual argument, the paper presents the results of an experimental study about the impact of negligence liability information on consumer product safety evaluation. The results show that provision of negligence information heightens consumer concern for safety and firms' ethical behavior, and increases the proportion of consumer choices in favors of the brands sold by manufacturers with a favorable track record for quality. More importantly, they indicate that provision of negligence information reduces the likelihood that brands which conform to inferior safety standards will be chosen by consumers who care about safety standards.
Introduction
Safety standards are not an easy issue for manufacturers. Even firms that aim to be morally responsible in adopting a particular level of product safety will often have trouble determining just how safe their products should be. This difficulty is compounded by the fact that economic costs attach to making products safe. These costs must be reflected in the price of a product. Thus a firm that makes its products much safer than its competitors will have to sell those products at a comparatively high price and risk suffering a corresponding disadvantage in the marketplace.
In this paper we present the results of a study in consumer behavior relevant to firms that are concerned both to act in socially responsible ways and to protect their place in a competitive market. We suggest that such firms often confront a version of the classic assurance problem, which arises when members of a group of actors each has a reason to cooperate in pursuit of some social good only if the others will cooperate in pursuit of that good (Hardin, 1988). We will present psychological evidence that suggests how the tort system can operate as a mechanism...