Does Product Liability Law Make Economic Sense?

The question of the economic rationale (or lack of rationale) behind product liability law arises periodically along with calls for reform of product liability law. There is no shortage of writing on this subject, and if you search diligently through the pile, you can pretty much be assured of finding at least two or three learned opinions with which to support any side of any argument.

One thing on which economists tend to agree is that law should promote economic efficiency. In product liability law, economic efficiency lies at the point where the product is safe enough and useful enough and is sold at a price that the market accepts. Consumers may be willing to forego a certain amount of safety for lower prices and more efficient products. For example, it may be possible to build absolutely safe cars (say, out of foam rubber), but what would they cost? And would they be as useful (offer the same level of “utility,” in economic terms) as metal cars? The market is willing to sacrifice some level of safety for reasonable prices and greater utility.