When Does Product Liability Risk Chill Innovation? Evidence from Medical Implants

Alberto Galasso and Hong Luo

American Economic Journal: Economic Policy, 2022, vol. 14, issue 2, 366-401

Abstract: 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.

JEL-codes: K13 L64 L65 O31 O34 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (5)

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DOI: 10.1257/pol.20190757

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