Liability laws designed to compensate for harms caused by defective products may also affect innovation. We examine this issue by exploiting a major quasi-exogenous increase in liability risk faced by US suppliers of polymers used to manufacture medical implants. Difference-in-difference analyses show that this surge in suppliers' liability risk had a large and negative impact on downstream innovation in medical implants, but it had no significant effect on upstream polymer patenting. Our findings suggest that liability risk can percolate throughout a vertical chain and may have a significant chilling effect on downstream innovation.
Galasso, Alberto, and Hong Luo.
"When Does Product Liability Risk Chill Innovation? Evidence from Medical Implants."
American Economic Journal: Economic Policy,
Tort Law and Product Liability; Forensic Economics
Other Machinery; Business Equipment; Armaments
Chemicals; Plastics; Rubber; Drugs; Biotechnology
Innovation and Invention: Processes and Incentives
Intellectual Property and Intellectual Capital