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  3. American Economic Journal: Economic Policy
  4. May 2022
  5. When Does Product Liability Risk Chill Innovation? Evidence from Medical Implants

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

  • Alberto Galasso
  • Hong Luo
American Economic Journal: Economic Policy
vol. 14, no. 2, May 2022
(pp. 366-401)
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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-difference 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.

Citation

Galasso, Alberto, and Hong Luo. 2022. "When Does Product Liability Risk Chill Innovation? Evidence from Medical Implants." American Economic Journal: Economic Policy, 14 (2): 366-401. DOI: 10.1257/pol.20190757

Additional Materials

JEL Classification

  • K13 Tort Law and Product Liability; Forensic Economics
  • L64 Other Machinery; Business Equipment; Armaments
  • L65 Chemicals; Plastics; Rubber; Drugs; Biotechnology
  • O31 Innovation and Invention: Processes and Incentives
  • O34 Intellectual Property and Intellectual Capital
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