Consumers, the legal system and product liability reform: A comparative perspective between Japan and the United States

A new Product Liability (PL) Act in Japan became effective in July, 1995. In the United States, congress passed, subject to the endorsement of the president, the legislation that limits the ceiling of compensations and punitive damages in PL cases. Thus, there seems to be a converging tendency between the Japanese system, which has relative emphasis on industrial interests and encouraged off-court settlements, and the U.S. system, which has relatively emphasized consumers' interest and encouraged litigation. A large difference exists between the United States and Japan, particularly in the number of suits about product liability. For example, within a half year after the enforcement of the new PL Act, only a single case was brought to court in Japan. This paper explains the legal content, the social background and the legislation process of the new PL Act in Japan. Using economic analysis, it clarifies the question of what the consequences are with the difference in legal systems on resource allocation in the two countries