A pharmaceutical company is required by law to pay damages to patients who suffer a rare, unforeseen side effect from one of its new medications. From an economic efficiency standpoint, what is the most significant outcome of this legal requirement?
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From an economic standpoint, a legal rule that holds a manufacturer 100% liable for any injury resulting from their product, even when the consumer uses it improperly, is the most efficient way to ensure product safety because it forces the company to internalize all possible costs.