PREVENTABLE FOOD BORNE ILLNESS WITH DOSE-RESPONSE DAMAGES: OPTIMAL SHARING OF PREVENTION BETWEEN CONSUMERS AND PROCESSORS AND THE EFFECT OF PRODUCT LIABILITY

As public concern for food safety burgeons concerned policy makers search for ways to manage the risk inherent to food consumption. Product liability laws may serve as efficient means to induce socially optimal levels of care or may efficiently complement regulation of potentially injurious activities. However, two characteristics common to many food borne illness cases are often not considered in the standard liability economics model that yields these prescriptions: dose-response damage functions and victim damage prevention. This paper explores how dose-response relationships common to the biology and epidemiology of food borne illness may effect the shape of resulting social welfare functions and privately chosen prevention efforts under different liability rules when both processor and consumer affect damages. Dose-response damage functions yield social objectives with multiple local optima that may dictate diametrically opposite policy prescriptions in terms of prevention sharing between consumer and processor. Small changes in the relative efficacy of either party's preventative effort may dictate discrete changes in the socially optimal prescription. Similarly, legal rules that fail to recognize both parties' contribution to damage (e.g., strict processor or consumer liability) or incorrectly define due care standards for processor negligence or contributory negligence may cause private decisions to differ discretely from socially optimal behavior.