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How does product liability risk affect innovation? Evidence from medical implants

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  • Galasso, Alberto
  • Luo, Hong

Abstract

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.

Suggested Citation

  • Galasso, Alberto & Luo, Hong, 2018. "How does product liability risk affect innovation? Evidence from medical implants," CEPR Discussion Papers 13036, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:13036
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    References listed on IDEAS

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    Cited by:

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    2. Rosario Crinó & Giovanni Immordino & Salvatore Piccolo, 2021. "Criminal mobility, fugitives, and extradition rules," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 23(1), pages 69-104, February.
    3. Elissa P. Gentry & Benjamin J. McMichael, 2020. "Responses to Liability Immunization: Evidence from Medical Devices," Journal of Empirical Legal Studies, John Wiley & Sons, vol. 17(4), pages 789-819, December.
    4. Alberto Galasso, 2020. "Comment on "The Roots of Agricultural Innovation: Patent Evidence of Knowledge Spillovers"," NBER Chapters, in: Economics of Research and Innovation in Agriculture, pages 76-79, National Bureau of Economic Research, Inc.
    5. Schaufele, Brandon, 2022. "Chilling Effects from Anti-SLAPP Laws," MPRA Paper 113740, University Library of Munich, Germany.
    6. De Chiara, Alessandro & Elizalde, Idoia & Manna, Ester & Segura-Moreiras, Adrian, 2021. "Car accidents in the age of robots," International Review of Law and Economics, Elsevier, vol. 68(C).
    7. Bleier, Alexander & Goldfarb, Avi & Tucker, Catherine, 2020. "Consumer privacy and the future of data-based innovation and marketing," International Journal of Research in Marketing, Elsevier, vol. 37(3), pages 466-480.
    8. Galasso, Alberto & Luo, Hong, 2019. "Risk-Mitigating Technologies: the Case of Radiation Diagnostic Devices," CEPR Discussion Papers 13682, C.E.P.R. Discussion Papers.
    9. Dove John A. & Dove Laura R., 2020. "US State Tort Liability Reform and Entrepreneurship," Review of Law & Economics, De Gruyter, vol. 16(3), pages 1-45, November.
    10. Matthew Grennan & Charu Gupta & Mara Lederman, 2018. "Firm Scope and Spillovers from New Product Innovation: Evidence from Medical Devices," NBER Working Papers 25183, National Bureau of Economic Research, Inc.

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    More about this item

    Keywords

    Product liability; Innovation; Tort; Medical devices; Vertical foreclosure;
    All these keywords.

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics

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