Law Commons^™

Product Liability And The Passage Of Time: The Imprisonment Of Corporate Rationality, James A. Henderson Jr.

Cornell Law Faculty Publications

In theory, the product liability system should induce manufacturers to invest in product safety at the socially optimal level, i.e., the level at which the marginal cost of the investment equals the marginal cost of product-related accidents thereby avoided. In reality, however, this inducement may be weakened by countervailing incentives, causing manufacturers in marginal cases to forgo investment that would appear to be cost-effective. Professor Henderson argues that in these cases corporate rationality has been "imprisoned" by two "real-world" phenomena. First, a manufacturer may postpone product improvements lest they be viewed by potential claimants and juries as a confession of …