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Title: Optimism and lender liability in the consumer credit market
Authors: Iossa, E
Palumbo, G
Keywords: consumer credit; lender liability; misrepresentation; overoptimism; product failure
Issue Date: 2008
Publisher: Brunel University
Citation: Economics and Finance Working papers, Brunel University, 08-06.
Abstract: Credit purchases of consumer goods are commonly made upon terms governed by an agreement between the lender and the seller. This type of purchase is generally subject to a legal principle of joint responsibility under which the lender and the seller are jointly liable to the consumer for breach of the sale contract by the seller. We study the rationale for this principle in situations where market failure arises because consumers underestimate the risk of product failure - for example due to seller misrepresentation - and it is difficult to enforce seller responsibility. We show that joint responsibility increases welfare and reduces the incentives of sellers to misrepresent the quality of their products.
Appears in Collections:Economics and Finance
Dept of Economics and Finance Research Papers

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