Product Liability, Multidimensional R&D and Innovation

Ping Lin and Tianle Zhang

MPRA Paper from University Library of Munich, Germany

Abstract: We study the effect of product liability on the incentives of product and safety innovation. We first develop a monopoly model in which a firm chooses both product novelty and safety in an innovation stage followed by a production stage. A greater product liability directly increases the marginal benefit of producing a safer product and thus increases product safety. However, as product liability increases, product novelty may increase or decrease, depending on the relative strengths of demand-shifting and cross-R&D effects identified in the model. Consequently, a greater product liability may decrease consumer welfare and thus total welfare. We extend the results to an oligopoly model with differentiated products and study the effects of competition measured by the number of firms and the degree of product substitutability. We find that equilibrium product novelty and safety decrease with the number of firms but exhibit non-monotonic relationships with the degree of product substitutability.

Keywords: Product Liability; Safety; Novelty; Innovation Incentive (search for similar items in EconPapers)
JEL-codes: D4 K13 L13 (search for similar items in EconPapers)
Date: 2019-11
New Economics Papers: this item is included in nep-bec, nep-com, nep-ind, nep-law, nep-mic, nep-ore, nep-sbm and nep-tid
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Product liability, multidimensional R&D and innovation (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:97078

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