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Regulatory policies in markets for delicate medical procedures

Authors
Journal
Economics Letters
0165-1765
Publisher
Elsevier
Publication Date
Volume
33
Issue
4
Identifiers
DOI: 10.1016/0165-1765(90)90091-e

Abstract

Abstract This paper examines regulation in markets where firms choose price-liability combinations. Our work implies that a recently suggested regulatory rule, restricting the maximum liability that can be assumed, does not increase consumer welfare. We also study a rule inspired by the German audit market, in which maximum liability is restricted but only as a multiple of the price. This reduction in the dimensionality of firm's strategy space is shown to reduce consumer welfare, if the liability–price multiple is smaller than the multiple observed under no regulation. However, even larger liability–price multiples could leave consumers worse off.

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