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Smart products: Liability, investments in product safety, and the timing of market introduction

Herbert Dawid and Gerd Muehlheusser

Journal of Economic Dynamics and Control, 2022, vol. 134, issue C

Abstract: We analyze the role of product liability for the emergence and development of smart products such as autonomous vehicles (AVs). We develop, and calibrate to the U.S. car market, a dynamic model where a (monopolistic) innovator chooses safety stock investments, the timing of market introduction, and the product price. Inducing higher long-term product safety through a strict (partial) liability rule reduces short-term safety investments and slows down AV market penetration. By contrast, negligence-based liability fosters initial investments without hampering long-term product safety. However, too stringent liability might forestall investments in the development of AVs and their market introduction.

Keywords: Product innovation; Product liability; Smart products; Autonomous vehicles; Optimal investment dynamics (search for similar items in EconPapers)
JEL-codes: K13 L11 L62 O31 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1016/j.jedc.2021.104288

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Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok

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