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

Author

Listed:
  • Alberto Galasso
  • Hong Luo

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-difference 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.

Suggested Citation

  • Alberto Galasso & Hong Luo, 2022. "When Does Product Liability Risk Chill Innovation? Evidence from Medical Implants," American Economic Journal: Economic Policy, American Economic Association, vol. 14(2), pages 366-401, May.
    • Handle: RePEc:aea:aejpol:v:14:y:2022:i:2:p:366-401
    DOI: 10.1257/pol.20190757
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    Citations

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    Cited by:

    1. Schaufele, Brandon, 2022. "Chilling Effects from Anti-SLAPP Laws," MPRA Paper 113740, University Library of Munich, Germany.
    2. Augustine Denteh & D'esir'e K'edagni, 2022. "Misclassification in Difference-in-differences Models," Papers 2207.11890, arXiv.org, revised Jul 2022.

    More about this item

    JEL classification:

    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
    • L64 - Industrial Organization - - Industry Studies: Manufacturing - - - Other Machinery; Business Equipment; Armaments
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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