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...

In a complex economy, production is vertical and crosses jurisdictional lines. Goods are often produced by a global or national firm upstream and improved or distributed by local firms downstream. In this context, heightened products liability may have unintended consequences for consumer...

Should the manufacturer of a product be held legally responsible when a consumer, while using the product, harms someone else? We show that if consumers have deep pockets then manufacturer liability is not economically efficient. It is more efficient for the consumers themselves to bear...

This paper formally analyzes strict liability and negligence in a market setting. The discussion emphasizes the impact of the rules on the market price and on the number of firms in the industry. For simplicity, the damage caused by each firm is assumed to be determined only by that firm's...

This paper compares alternative liability rules for allocating losses from defective products when consumers under- estimate these losses and producers may have some market power. If producers do not have any market power, the rule of strict liability .leads to both the first-best accident...

Product-recall data and information on stock-price reactions to recalls are used to estimate the value of reputation in a model in which product quality is not contractible. A recall is the result of a product defect that signals low effort. The recall triggers a reduction in the firm's product...

In the United States, drugs are jointly regulated by the US Food and Drug Administration, which oversees premarket clinical trials designed to ensure drug safety and efficacy, and the liability system, which allows patients to sue manufacturers for unsafe drugs. In this paper, we examine the...

We argue that existence of public good does not necessarily imply market failure, and illustrate this point in the context of international trade. An influential hypothesis states that export pioneers are too few relative to social optimum because the first exporter's action creates an...

This paper examines two potential channels of knowledge acquisition that underlie firm productivity growth in the Taiwanese electronics industry: participation in the export market and investments in Ramp;D and/or worker training. We focus on the argument that a firm's own investments in Ramp;D...

This paper examines possible consequences of subsidies to R&D and to volume production proposed under the Clinton administration's flat panel display initiative. We do this in the context of a model in which firms behave competitively in the short run, while realizing that their choices of...