Products Liability Through Private Ordering: Notes on a Japanese Experiment

Abstract

Any justification of strict products liability faces a problem: why should the law impose on private contracts made in competitive product markets what is effectively a mandatory insurance contract? Proponents of the current regime generally justify it by citing some mix of contracting costs, informational asymmetries, and (sometimes) consumer irrationality. The common implicit premise is that parties to ordinary consumer sales contracts would not, in an unregulated market, negotiate strict products liability by contract. In fact, over the past 20 years, manufacturers of a wide variety of products in Japan have voluntarily offered strict products liability protection by contract. In this article, I introduce the data on these contracts, and explore why some manufacturers (but not others) have found the contracts economically advantageous.