Product Liability, Research and Development, and Innovation

Product liability ideally should promote efficient levels of product safety but misdirected liability efforts may depre ss beneficial innovations. This paper examines these competing effects of liability costs on product R&D intensity and new product introductio ns by manufacturing firms. At low to moderate levels of expected liabil ity costs, there is a positive effect of liability costs on product innovation. At very high levels of liability costs, the effect is negative. At the sample mean, liability costs increase R&D intensity by 15 percent. The greater linkage of these effects to product R&D i s consistent with the increased prominence of the design defect doctrine. Copyright 1993 by University of Chicago Press.