Tort Reform and Innovation

Abstract

and Strategy conference, and the Northwestern Searle Conference on Innovation Economics for helpful comments. We are also grateful to Kira Fabrizio and Ronnie Chatterji for sharing data on physician-inventors. Danielle Wedde and Esther Yan provided excellent research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

Smart Products: Liability, Timing of Market Introduction, and Investments in Product Safety

“…In particular, the innovator might prefer to induce a passive steady state, in which there is no investment into the safety stock of the smart product, and where it is never launched. Overall, these results are consistent with empirical findings that the effect of liability on innovation activities is ex ante unclear and might go in either direction (Viscusi andMoore, 1991, 1993;Galasso andLuo, 2017, 2018b).…”

“…For example, in their seminal empirical study in the U.S. manufacturing sector Viscusi and Moore (1993) find that the relationship between liability and the intensity of firms' innovative activities is positive (negative) when the stringency of liability is high (low), with the average effect being positive. 12 More recently, Galasso and Luo (2017) empirically analyze the impact of tort reforms in the health sector (which have reduced the stringency of liability), and they find that this has led to a decrease of innovative activities of upstream suppliers. By contrast, Galasso and Luo (2018b) consider vertical relationships in the medical implant industry.…”

“…This view is supported also in our calibration exercise for the U.S. automobile industry. Viscusi and Moore (1993), Galasso and Luo (2017) and Galasso and Luo (2018b) also develop static models in which they capture the main effects of the empirical analysis. By contrast, our dynamic framework allows for a more detailed analysis of the interplay of the various effects in the short-und long-term, and the timing of innovations.…”

“…But on the other hand, it might have a "chilling effect" on innovative activities, for example in the form of choosing to not develop new products (Viscusi, 1991;Parchomovsky and Stein, 2008;Viscusi, 2012), even if they are potentially superior than existing ones. 10 From an empirical point of view, both effects seem relevant (see e.g., McGuire, 1988;Viscusi and Moore, 1993;Galasso andLuo, 2017, 2018b). Hence, in the light of the potentially large benefits from AVs in the long-term, the stringency of liability for firms involved in the development, production and operation of AVs and other smart products seems a highly relevant policy issue.…”

Firm Scope and Spillovers From New Product Innovation: Evidence From Medical Devices

“…These results also relate broadly to recent antitrust debates in the technology and telecom sectors where there has been much concern about market power in one product category affecting competition and innovation in related product categories. More specifically, they add to the growing body of research on the factors influencing innovation incentives in medical technology in particular (Chatterji and Fabrizio 2012;Nistor and Tucker 2015;Chatterji and Fabrizio 2016;Galasso and Luo 2017;Stern 2017;Grennan and Town 2018;Galasso and Luo 2018).…”