Ch. 8 - Ch. 8 Notes The first issue, product safety, is big...

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Ch. 8 Notes The first issue, product safety , is big o Are corporations responsible for their products, especially when they are freely chosen and purchased by consumers? o Should we have government agencies to regulate potentially dangerous products, or should we allow market forces to determine how such goods are exchanged? o McDonald’s case: Should they be held responsible for the negative effects of their products? Or should responsibility rest with consumers? The lawsuit against McDonalds (and tobacco companies, gun manufacturers, auto companies, etc.) are instances of product liability lawsuits o Product liability lawsuits are government interventions in the market and hence they are the source of massive debate by economists and social theorists Your editors provide you with a nice history of the development of product liability law and the spectrum of positions o Buyer beware (corporations, businesses, sellers, have no responsibility) o Negligence liability (corporations et al. have to be consciously and grossly negligent in selling dangerous products to be responsible) o Strict liability (corporations can be held legally liable for the consequences of their products even when they are not knowingly negligent) The latter system is the one we currently have in the US (your editors propose a modification of it that spreads costs around a bit, but they remain committed to strict liability) Free market, CSR (Friedman) theorists are adamantly opposed to product liability law o They argue, first, that the market will self-correct for product safety— again, harming one’s consumers makes bad market sense (not a strong argument as we saw earlier—short-term vs. long-term) o Second, it undercuts the value of individual responsibility and teaches people to shift the blame o Third, it leads to fishing expeditions and frivolous lawsuits (which is how many people see that McDonald’s coffee case) o The main argument, though, is that strict liability imposes excessive costs on business and corporations o The argument is elegant and simple: High tort (private party lawsuits) penalties are equivalent to increased taxes Increased taxes lead to the production of economic losses in the form of less services and products provided by corporations Less services and products leads to higher prices for consumers , lower wages for workers , and lower stock prices/profits for investors
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Notice, there is no CEO compensation discussion… This argument, made by Bush’s Council of Economic Advisers gives voice to the
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Ch. 8 - Ch. 8 Notes The first issue, product safety, is big...

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