DP13036 How does product liability risk affect innovation? Evidence from medical implants
|Author(s):||Alberto Galasso, Hong Luo|
|Publication Date:||July 2018|
|Keyword(s):||Innovation, medical devices, product liability, tort, vertical foreclosure|
|JEL(s):||K13, O31, O32, O34|
|Programme Areas:||Public Economics, Industrial Organization|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=13036|
Liability laws designed to compensate for harms caused by defective products may also affect innovation incentives. This paper examines this issue, exploiting a major quasi-exogenous increase in liability risk faced by US suppliers of polymers used to manufacture medical devices implanted in human bodies. Difference-in-differences analyses suggest that the surge in liability risk had a large and negative impact on downstream innovation in medical implants but no significant effect on upstream polymer patenting. These findings show how tort laws may affect the development of new technologies and how liability risk may percolate through an industry's vertical chain.