When Does Product Liability Risk Chill Innovation? Evidence From Medical Implants
78 Pages Posted: 24 Jul 2018 Last revised: 11 Aug 2019
Date Written: July 23, 2019
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-differences 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.
Keywords: product liability, innovation, tort, medical devices, vertical foreclosure
JEL Classification: O31, O32, O34, K13
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