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Innovation, tort law, and competition

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  • Baumann, Florian
  • Heine, Klaus

Abstract

In this paper, we examine the link between innovative activity on the part of firms, the competitive pressure to introduce innovations and optimal damages awards. While innovative activity brings forth valuable new products for consumers, competitive pressure in the ensuing innovation race induces firms to launch innovations too early, thereby raising the likelihood of severe product risks above the optimal failure rate. Introducing innovations too early may call for the application of punitive damages instead of mere compensation of harm caused, in order to decelerate such welfare-reducing innovation races. The optimal tort system is accordingly highly dependent not only on the expected profits and the effectiveness of time delays with respect to reducing expected harm, but also on the competitive environment in which firms operate. --

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Paper provided by Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE) in its series DICE Discussion Papers with number 78.

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Date of creation: 2012
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Handle: RePEc:zbw:dicedp:78

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Keywords: competition; innovation; punitive damages; tort law;

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  1. Viscusi, W Kip & Moore, Michael J, 1993. "Product Liability, Research and Development, and Innovation," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 101(1), pages 161-84, February.
  2. Steven Shavell, 2012. "A Fundamental Enforcement Cost Advantage of the Negligence Rule over Regulation," NBER Working Papers 18418, National Bureau of Economic Research, Inc.
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  4. Aghion, P. & Howitt, P., 1990. "A Model Of Growth Through Creative Destruction," DELTA Working Papers, DELTA (Ecole normale supérieure) 90-12, DELTA (Ecole normale supérieure).
  5. Laura Bottazzi & Giovanni Peri, . "Innovation and Spillovers in Regions: Evidence from European Patent Data," Working Papers 215, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  6. Florian Baumann & Tim Friehe, 2012. "Optimal Damages Multipliers in Oligopolistic Markets," Working Paper Series of the Department of Economics, University of Konstanz, Department of Economics, University of Konstanz 2012-08, Department of Economics, University of Konstanz.
  7. Howitt, Peter & Griffith, Rachel & Aghion, Philippe & Blundell, Richard & Bloom, Nick, 2005. "Competition and Innovation: An Inverted-U Relationship," Scholarly Articles 4481507, Harvard University Department of Economics.
  8. SHAVELL, Steven & VAN YPERSELE, Tanguy, . "Rewards versus intellectual property rights," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -1597, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  9. Graves, Samuel B., 1989. "The time-cost tradeoff in research and development: A review," Engineering Costs and Production Economics, Elsevier, Elsevier, vol. 16(1), pages 1-9, February.
  10. Shavell, Steven, 1992. "Liability and the Incentive to Obtain Information about Risk," The Journal of Legal Studies, University of Chicago Press, University of Chicago Press, vol. 21(2), pages 259-70, June.
  11. Zucchini, Leon & Kretschmer, Tobias, 2011. "Competitive Pressure: Competitive Dynamics as Reactions to Multiple Rivals," Discussion Papers in Business Administration, University of Munich, Munich School of Management 12308, University of Munich, Munich School of Management.
  12. Loury, Glenn C, 1979. "Market Structure and Innovation," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 93(3), pages 395-410, August.
  13. Morton I. Kamien & Nancy L. Schwartz, 1980. "A Generalized Hazard Rate," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 435, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  14. Kamien, Morton I & Schwartz, Nancy L, 1972. "Timing of Innovations Under Rivalry," Econometrica, Econometric Society, Econometric Society, vol. 40(1), pages 43-60, January.
  15. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
  16. Paul H. Rubin & Joanna M. Shepherd, 2007. "Tort Reform and Accidental Deaths," Journal of Law and Economics, University of Chicago Press, University of Chicago Press, vol. 50, pages 221-238.
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