Product and Stock Market Response to Automotive Product Liability Verdicts

by Steven Garber, John L. Adams

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Claims about detrimental economic effects of product liability are a cornerstone of efforts by tort reformers to rally support. It seems fair to say, however, that existing evidence about economic effects of product liability is sketchy. In this paper, the authors attempt to develop information about a narrow but important piece of a very complex puzzle. In particular, they develop quantitative evidence about a component of automobile manufacturers’ incentives stemming from product liability by examining effects of trial verdicts on company stock prices and on new vehicle sales. The authors know of no similar study.

Originally published in: Brookings Papers on Economic Activity: Microeconomics, 1998, pp. 1-53.

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