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 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.
Keywords: product liability; innovation; tort; medical devices; vertical foreclosure; Legal Liability; Innovation and Invention; Laws and Statutes; Medical Devices and Supplies Industry;
Citation:
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.) View Details
