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Innovation, tort law, and competition

  • Baumann, Florian
  • Heine, Klaus

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 Düsseldorf Institute for Competition Economics (DICE), University of Düsseldorf 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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  17. Morton I. Kamien & Nancy L. Schwartz, 1980. "A Generalized Hazard Rate," Discussion Papers 435, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
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