| Abstract: | This paper reexamines the competitive market solution to the determination of product safety. The concept of an optimizing social level of product safety-defined at the point at which the costs of increasing safety are equated to consumers willingness to pay for it-is developed and discussed. Various potential market failures are outlined. These failures give reasons to expect that the competitive solution will not be achieved in practice and provide a rationale for certain types of governmental intervention. Various empirical studies of implicit markets for various types of risks are reviewed as a basis for evaluating market efficiency and regulatory efficiency. |
