Unintended Consequences of Products Liability: Evidence from the Pharmaceutical Market
In a complex economy, production is vertical and crosses jurisdictional lines. Goods are often produced by an upstream national or global firm and improved or distributed by local firms downstream. In this context, heightened products liability may have unintended consequences on product sales and consumer safety. Conventional wisdom holds that an increase in tort liability on the upstream firm will cause that firm to (weakly) increase investment in safety or disclosure. However, this may fail in the real-world, where upstream firms operate in many jurisdictions, so that the actions of a single jurisdiction may not be significant enough to influence upstream firm behavior. Even worse, if liability is shared between upstream and downstream firms, higher upstream liability may mechanically decrease liability of the downstream distributor and encourage more reckless behavior by the downstream firm. In this manner, higher upstream liability may perversely increase the sales of a risky good. We demonstrate this phenomenon in the context of the pharmaceutical market. We show that higher products liability on upstream pharmaceutical manufacturers reduces the liability faced by downstream doctors, who respond by prescribing more drugs than before.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
|Date of creation:||Mar 2014|
|Date of revision:|
|Note:||HC HE LE PE|
|Contact details of provider:|| Postal: |
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Mathias Dewatripont & Patrick Bolton, 2005.
ULB Institutional Repository
2013/9543, ULB -- Universite Libre de Bruxelles.
- Eric Helland & Jonathan Klick & Alexander Tabarrok, 2005. "Data Watch: Tort-uring the Data," Journal of Economic Perspectives, American Economic Association, vol. 19(2), pages 207-220, Spring.
- David A. Matsa, 2007. "Does Malpractice Liability Keep the Doctor Away? Evidence from Tort Reform Damage Caps," The Journal of Legal Studies, University of Chicago Press, vol. 36(S2), pages S143-S182, 06.
- Janet Currie & W. Bentley MacLeod, 2008.
"First Do No Harm? Tort Reform and Birth Outcomes,"
The Quarterly Journal of Economics,
MIT Press, vol. 123(2), pages 795-830, 05.
- Oates, Wallace E. & Schwab, Robert M., 1988. "Economic competition among jurisdictions: efficiency enhancing or distortion inducing?," Journal of Public Economics, Elsevier, vol. 35(3), pages 333-354, April.
- Patrick Legros & Steven A. Matthews, 1992.
"Efficient and Nearly Efficient Partnerships,"
991R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- A. Mitchell Polinsky & William P. Rogerson, 1982.
"Products Liability, Consumer Misperceptions, and Market Power,"
NBER Working Papers
0937, National Bureau of Economic Research, Inc.
- A. Mitchell Polinsky & William P. Rogerson, 1983. "Products Liability, Consumer Misperceptions, and Market Power," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 581-589, Autumn.
- Jonathan Klick & Thomas Stratmann, 2007. "Medical Malpractice Reform and Physicians in High-Risk Specialties," The Journal of Legal Studies, University of Chicago Press, vol. 36(S2), pages S121-S142, 06.
- Wesley Yin & Darius Lakdawalla, 2011.
"Insurers’ Negotiating Leverage and the External Effects of Medicare Part D,"
Boston University - Department of Economics - Working Papers Series
WP2011-065, Boston University - Department of Economics.
- Darius N. Lakdawalla & Wesley Yin, 2010. "Insurers' Negotiating Leverage and the External Effects of Medicare Part D," NBER Working Papers 16251, National Bureau of Economic Research, Inc.
- Spence, A Michael, 1977. "Consumer Misperceptions, Product Failure and Producer Liability," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 561-72, October.
- Miceli, Thomas J. & Segerson, Kathleen, 1991. "Joint liability in torts: Marginal and infra-marginal efficiency," International Review of Law and Economics, Elsevier, vol. 11(3), pages 235-249, December.
- Bruce Hay & Kathryn E. Spier, 2005. "Manufacturer Liability for Harms Caused by Consumers to Others," American Economic Review, American Economic Association, vol. 95(5), pages 1700-1711, December.
- Miceli, Thomas J., 1997. "Economics of the Law: Torts, Contracts, Property, Litigation," OUP Catalogue, Oxford University Press, number 9780195103908.
- Eric Helland & Mark H. Showalter, 2009. "The Impact of Liability on the Physician Labor Market," Journal of Law and Economics, University of Chicago Press, vol. 52(4), pages 635-663, November.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:20005. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.