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

72 Pages Posted: 24 Sep 2018 Last revised: 1 Jul 2023

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.

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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