How does product liability risk affect innovation? Evidence from medical implants

Alberto Galasso and Hong Luo

No 13036, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Liability laws designed to compensate for harms caused by defective products may also affect innovation incentives. This paper examines this issue, exploiting a major quasi-exogenous increase in liability risk faced by US suppliers of polymers used to manufacture medical devices implanted in human bodies. Difference-in-differences analyses suggest that the surge in liability risk had a large and negative impact on downstream innovation in medical implants but no significant effect on upstream polymer patenting. These findings show how tort laws may affect the development of new technologies and how liability risk may percolate through an industry's vertical chain.

Keywords: Product liability; Innovation; Tort; Medical devices; Vertical foreclosure (search for similar items in EconPapers)
JEL-codes: K13 O31 O32 O34 (search for similar items in EconPapers)
Date: 2018-07
New Economics Papers: this item is included in nep-ino, nep-law and nep-tid
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Citations: View citations in EconPapers (12)

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