When Does Product Liability Risk Chill Innovation? Evidence From Medical Implants

78 Pages Posted: 24 Jul 2018 Last revised: 11 Aug 2019

See all articles by Alberto Galasso

Alberto Galasso

University of Toronto - Rotman School of Management; University of Toronto - Strategic Management

Hong Luo

Harvard Business School - Strategy Unit

Date Written: July 23, 2019

Abstract

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

Suggested Citation

Galasso, Alberto and Luo, Hong, When Does Product Liability Risk Chill Innovation? Evidence From Medical Implants (July 23, 2019). Harvard Business School Strategy Unit Working Paper No. 19-002. Available at SSRN: https://ssrn.com/abstract=3207503 or http://dx.doi.org/10.2139/ssrn.3207503

Alberto Galasso (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

HOME PAGE: http://www.rotman.utoronto.ca/facbios/viewFac.asp?facultyID=alberto.galasso

University of Toronto - Strategic Management ( email )

105 St George Street
Toronto, ON M5S 1L2
Canada

Hong Luo

Harvard Business School - Strategy Unit ( email )

Harvard Business School
Soldiers Field Road
Boston, MA 02163
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
59
Abstract Views
457
rank
359,982
PlumX Metrics