There has been increasing consumer protection concerning defective products in Korea. However, because the Civil Code is inadequate to protect demages caused by defective products, consumers require the extended product liability rule. Government plans to enact product liability law in 1997.

In this work, first, current product liability cases are reviewed and then foreign product liability laws and cases are introduced. And economic effects of product liability are analyzed comparing economic efficiency of negligence rule with strict liability rule. In view of economic efficiency, I evaluate the product liability law proposed by Korea Consumer Protection Board. I find out that product liability law proposed by KCPB empasizes consumer's side and adopts strict liability rule. But under strict liability rule producer is liable for the harms arising from the use of manufacturer's products. Producer has voluntary incentive to reduce the harms. But consumer has no incentive to take precautions against using products and then consumer's moral hazard occurs. Therefore, strict liability rule should be considered carefully in product liability legislation.

I suggest that strict liability rule has to be adopted if precaution is unilateral - that is, if only the injurer can be looked to for action to reduce the probability and severity of an accident. If precaution is bilateral - that is, if both parties can take precationary action to reduce the probability and severity of an accident - the negligence rule has to be applied.