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

72 Pages Posted: 24 Sep 2018

See all articles by Alberto Galasso

Alberto Galasso

University of Toronto - Strategic Management

Hong Luo

Harvard Business School - Strategy Unit

Date Written: September 2018

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.

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Suggested Citation

Galasso, Alberto and Luo, Hong, When Does Product Liability Risk Chill Innovation? Evidence from Medical Implants (September 2018). NBER Working Paper No. w25068. Available at SSRN: https://ssrn.com/abstract=3254043

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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