NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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When does Product Liability Risk Chill Innovation? Evidence from Medical Implants

Alberto Galasso, Hong Luo

NBER Working Paper No. 25068
Issued in September 2018
NBER Program(s):The Law and Economics Program, The Productivity, Innovation, and Entrepreneurship Program

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.

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Document Object Identifier (DOI): 10.3386/w25068

 
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