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

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  • Alberto Galasso
  • Hong Luo
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-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.

Suggested Citation

  • Alberto Galasso & Hong Luo, 2018. "When does Product Liability Risk Chill Innovation? Evidence from Medical Implants," NBER Working Papers 25068, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:25068
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    References listed on IDEAS

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    Cited by:

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    3. Schaufele, Brandon, 2022. "Chilling Effects from Anti-SLAPP Laws," MPRA Paper 113740, University Library of Munich, Germany.
    4. Bleier, Alexander & Goldfarb, Avi & Tucker, Catherine, 2020. "Consumer privacy and the future of data-based innovation and marketing," International Journal of Research in Marketing, Elsevier, vol. 37(3), pages 466-480.
    5. Galasso, Alberto & Luo, Hong, 2019. "Risk-Mitigating Technologies: the Case of Radiation Diagnostic Devices," CEPR Discussion Papers 13682, C.E.P.R. Discussion Papers.
    6. Rogers, Parker, 2022. "Regulating the Innovators: Approval Costs and Innovation in Medical Technologies," SocArXiv c8s3m, Center for Open Science.
    7. Rosario Crinó & Giovanni Immordino & Salvatore Piccolo, 2021. "Criminal mobility, fugitives, and extradition rules," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 23(1), pages 69-104, February.
    8. Alberto Galasso, 2020. "Comment on "The Roots of Agricultural Innovation: Patent Evidence of Knowledge Spillovers"," NBER Chapters, in: Economics of Research and Innovation in Agriculture, pages 76-79, National Bureau of Economic Research, Inc.
    9. De Chiara, Alessandro & Elizalde, Idoia & Manna, Ester & Segura-Moreiras, Adrian, 2021. "Car accidents in the age of robots," International Review of Law and Economics, Elsevier, vol. 68(C).

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    More about this item

    JEL classification:

    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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