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Working Paper HBS Working Paper Series 2018 When Does Product Liability Risk Chill Innovation? Evidence from Medical Implants |
Liability laws designed to compensate for harms caused by defective products may also affect in-novation. 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.
Keywords: product liability; innovation; tort; medical devices; vertical foreclosure; Legal Liability; Innovation and Invention; Laws and Statutes; Medical Devices and Supplies Industry;
Galasso, Alberto, and Hong Luo. "When Does Product Liability Risk Chill Innovation? Evidence from Medical Implants." Harvard Business School Working Paper, No. 19-002, July 2018. (Revised September 2018.)
