When Does Product Liability Risk Chill Innovation? Evidence from Medical Implants
- American Economic Journal: Economic Policy (Forthcoming)
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 U.S. 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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