Abstract:
This thesis examines the economic issues surrounding liability for genetically modified organisms, with focus on the New Zealand situation and liability debate. I review the law and economics literature on liability, and consider an adverse selection problem that occurs where GMO firms choose whether to conduct a project when project benefits and risks are heterogeneous. I consider the rationale for and effects of joint use of liability and regulation in a simple model, and find that negligence and strict liability are equivalent. I then find consider a range of complications such as bilateral precaution, sunk research costs, imperfect and asymmetric information, biased regulators, judgement errors, externalities and limited injurer assets. I find that strict liability leads to higher social welfare than negligence under all of these cases except positive externalities and limited injurer assets.
