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  • May 2022
  • Article
  • American Economic Journal: Economic Policy

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

By: Alberto Galasso and Hong Luo
  • Format:Print
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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 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; Product; Innovation and Invention; Legal Liability; 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." American Economic Journal: Economic Policy 14, no. 2 (May 2022): 366–401.
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About The Author

Hong Luo

Strategy
→More Publications

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  • Laboratory Safety and Research Productivity By: Alberto Galasso, Hong Luo and Brooklynn Zhu
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