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Regulatory policies in markets for delicate medical procedures

Author: Röller, Lars-Hendrik ; Krishnan, MurugappaINSEAD Area: Economics and Political ScienceIn: Economics Letters, vol. 33, no. 4, August 1990 Language: EnglishDescription: p. 375-383.Type of document: INSEAD ArticleNote: Please ask us for this itemAbstract: This paper examines regulation in markets where firms choose price-liability combinations. It implies that a recently suggested regulatory rule, restricting the maximum liability that can be assumed, does not increase consumer welfare. The paper also studies 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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This paper examines regulation in markets where firms choose price-liability combinations. It implies that a recently suggested regulatory rule, restricting the maximum liability that can be assumed, does not increase consumer welfare. The paper also studies 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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