Unintended Consequences of Products Liability: Evidence from the Pharmaceutical Market

Eric Helland (), Darius Lakdawalla, Anup Malani and Seth Seabury

No 20005, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In a complex economy, production is vertical and crosses jurisdictional lines. Goods are often produced by a global or national firm upstream and improved or distributed by local firms downstream. In this context, heightened products liability may have unintended consequences for consumer safety. Conventional wisdom holds that an increase in tort liability on the upstream firm will encourage that firm to improve safety for consumers. However, in the real-world, policy actions in a single jurisdiction may not be significant enough to influence the behavior of an upstream firm that produces for many jurisdictions. Even worse, if liability is shared between upstream and downstream firms, higher upstream liability may decrease the liability of the downstream distributor and encourage it to behave more recklessly. In this manner, higher upstream liability may perversely increase the sales of a risky good. We demonstrate this phenomenon in the context of the pharmaceutical market. We show that higher products liability on upstream pharmaceutical manufacturers reduces the liability faced by downstream doctors, who respond by prescribing more drugs than before.

JEL-codes: H7 I1 I11 K13 (search for similar items in EconPapers)
Date: 2014-03
New Economics Papers: this item is included in nep-bec and nep-com
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Published as Eric Helland & Darius Lakdawalla & Anup Malani & Seth A Seabury, 2021. "Unintended Consequences of Products Liability: Evidence from the Pharmaceutical Market*," The Journal of Law, Economics, and Organization, vol 36(3), pages 598-632.

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Journal Article: Unintended Consequences of Products Liability: Evidence from the Pharmaceutical Market* (2020)
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