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Patent Races for COVID-19 Vaccines and Liability Rules

Author

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  • Kim Jeong-Yoo

    (Department of Economics, Kyung Hee University, 1 Hoegidong, Dongdaemunku, Seoul 130-701, Korea)

Abstract

I analyze a model of patent races for COVID-19 vaccines under alternative liability rules. The first inventor of the vaccine gets the monopoly rent, but must assume full liability from its side effects. In this model, firms choose two kinds of investments, one for inventing a vaccine and the other for its safety. I show that firms have an incentive to overinvest in both activities under strict liability. This is contrasted with the established result established that the injurer takes socially optimal accident-preventing precaution under strict liability. This contrast comes from the competition effect. Overinvestment in inventing vaccines due to competition makes a firm overinvest in safety as well. I also argue that it is undesirable for firms to get full or partial exemption from liability, because it would reduce the incentive to invest in safety. Instead, reducing the monopoly rent by regulating the vaccine price resolves both overinvestment problems.

Suggested Citation

  • Kim Jeong-Yoo, 2020. "Patent Races for COVID-19 Vaccines and Liability Rules," Asian Journal of Law and Economics, De Gruyter, vol. 11(3), pages 1-13, December.
    • Handle: RePEc:bpj:ajlecn:v:11:y:2020:i:3:p:13:n:4
    DOI: 10.1515/ajle-2020-0042
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    References listed on IDEAS

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    1. João Ricardo Faria & Franklin G. Mixon, Jr. & Steven B. Caudill & Samantha J. Wineke, 2014. "Two-Dimensional Effort in Patent-Race Games and Rent-Seeking Contests: The Case of Telephony," Games, MDPI, vol. 5(2), pages 1-11, May.
    2. A. Mitchell Polinsky, 1980. "Strict Liability versus Negligence in a Market Setting," NBER Working Papers 0420, National Bureau of Economic Research, Inc.
    3. Tom Lee & Louis L. Wilde, 1980. "Market Structure and Innovation: A Reformulation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 94(2), pages 429-436.
    4. Jeong-Yoo Kim, 2006. "Strict liability versus negligence when the injurer's activity involves positive externalities," European Journal of Law and Economics, Springer, vol. 22(1), pages 95-104, July.
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    Cited by:

    1. Iwasaki Masaki, 2022. "Segmentation of Social Norms and Emergence of Social Conflicts Through COVID-19 Laws," Asian Journal of Law and Economics, De Gruyter, vol. 13(1), pages 1-36, April.
    2. Adachi Kiyoshi, 2023. "The Patentability of Second and Subsequent Medical Uses in Asia’s Patent Legislation," Asian Journal of Law and Economics, De Gruyter, vol. 14(1), pages 59-75, April.

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    JEL classification:

    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics

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