How Does Product Liability Risk Affect Innovation? Evidence from Medical Implants

68 Pages Posted: 9 Jul 2018

See all articles by Alberto Galasso

Alberto Galasso

University of Toronto - Strategic Management

Hong Luo

Harvard Business School - Strategy Unit

Date Written: July 2018

Abstract

Liability laws designed to compensate for harms caused by defective products may also affect innovation incentives. This paper examines this issue, exploiting a major quasi-exogenous increase in liability risk faced by US suppliers of polymers used to manufacture medical devices implanted in human bodies. Difference-in-differences analyses suggest that the surge in liability risk had a large and negative impact on downstream innovation in medical implants but no significant effect on upstream polymer patenting. These findings show how tort laws may affect the development of new technologies and how liability risk may percolate through an industry's vertical chain.

Keywords: Innovation, medical devices, product liability, tort, vertical foreclosure

JEL Classification: K13, O31, O32, O34

Suggested Citation

Galasso, Alberto and Luo, Hong, How Does Product Liability Risk Affect Innovation? Evidence from Medical Implants (July 2018). CEPR Discussion Paper No. DP13036, Available at SSRN: https://ssrn.com/abstract=3210601

Alberto Galasso (Contact Author)

University of Toronto - Strategic Management ( email )

Canada

Hong Luo

Harvard Business School - Strategy Unit ( email )

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

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