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

No 25068, NBER Working Papers from National Bureau of Economic Research, Inc

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-differences 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 O31 O32 O34 (search for similar items in EconPapers)
Date: 2018-09
New Economics Papers: this item is included in nep-law and nep-tid
Note: LE PR
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Citations: View citations in EconPapers (11)

Published as Alberto Galasso & Hong Luo, 2022. "When Does Product Liability Risk Chill Innovation? Evidence from Medical Implants," American Economic Journal: Economic Policy, vol 14(2), pages 366-401.

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