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  3. American Economic Journal: Microeconomics
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  5. Holding Platforms Liable

American Economic Journal:
Microeconomics

ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)

Holding Platforms Liable

  • Xinyu Hua
  • Kathryn E. Spier
American Economic Journal: Microeconomics (Forthcoming)

Abstract

Should platforms be liable for harms suffered by users? A platform enables interactions between firms and users. Harmful firms impose larger costs on users than safe firms. If firms have deep pockets and are fully liable for harms, platform liability is unnecessary. If firms have limited liability, holding platforms liable for residual harm increases platforms' incentives to raise interaction prices and invest in auditing to deter, detect, and block harmful firms. The social desirability and optimal level of platform liability depend on whether interactions require user con- sent, the degree to which users internalize harms, and the observability of platform effort.

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