Risk-Mitigating Technologies: The Case of Radiation Diagnostic Devices

Alberto Galasso () and Hong Luo ()
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Alberto Galasso: University of Toronto, Toronto, Ontario M5S 1A1, Canada; Centre for Economic Policy Research, London EC1V 0DX, United Kingdom; National Bureau of Economic Research, Cambridge, Massachusetts 02138
Hong Luo: Harvard Business School, Boston, Massachusetts 02163

Management Science, 2021, vol. 67, issue 5, 3022-3040

Abstract: We study the impact of consumers’ risk perception on firm innovation. Our analysis exploits a major surge in the perceived risk of radiation diagnostic devices following extensive media coverage of a set of overradiation accidents involving computed tomography (CT) scanners in late 2009. Using data on radiation diagnostic device patents and Food and Drug Administration (FDA) product clearances, we find that the increased perception of radiation risk spurred the development of new technologies that mitigated such risk and led to a greater number of new products. Using CT scanners as a case study, we provide an in-depth characterization of two different types of risk-mitigating technologies that firms developed after the shock. Firm-level analysis shows that, although firms were similarly responsive in their patenting activities, large incumbents were significantly more responsive than smaller firms in terms of new product introductions, and, in the case of CT scanners, large incumbents were also significantly more responsive in terms of the more radical type of risk-mitigating technologies. We also provide qualitative evidence and describe patterns of equipment usage and upgrade that are consistent with increased risk perception and, consequently, a greater willingness to pay for safety. Overall, our findings suggest that changes in risk perception can be an important driver of innovation, can shape the direction of technological progress, and can impact market structure.

Keywords: risk perception; innovation; medical devices; liability risk (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (2)

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