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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.

Suggested Citation

  • Baumann, Florian & Heine, Klaus, 2012. "Innovation, tort law, and competition," DICE Discussion Papers 78, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    • Handle: RePEc:zbw:dicedp:78
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    References listed on IDEAS

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    Cited by:

    1. Ping Lin & Tianle Zhang, 2022. "Product liability, multidimensional R&D and innovation," Journal of Economics, Springer, vol. 136(1), pages 25-45, June.
    2. Gérard Mondello & Evens Salies, 2018. "The unilateral accidenct model under a constrained Cournot-Nash duopoly," Sciences Po publications 14, Sciences Po.
    3. Gérard Mondello & Evens Salies, 2016. "Tort law under oligopolistic competition," SciencePo Working papers Main hal-03459225, HAL.
    4. repec:hal:spmain:info:hdl:2441/1jki13i7298a9knanhskpugh3 is not listed on IDEAS
    5. repec:hal:spmain:info:hdl:2441/5a1unjmoh881mrfbrlqhebkbba is not listed on IDEAS

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    More about this item

    Keywords

    competition; innovation; punitive damages; tort law;
    All these keywords.

    JEL classification:

    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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