Innovation, information, lobby and tort law under uncertainty

Innovative firms have developed strategies to protect their business interests, such as concealing unfavourable results to avoid product withdrawal from the market (e.g. Monsanto, Servier). This behaviour poses a social challenge, as marketing hazardous products can have costly effects on Society (e.g. health and environment). This paper presents a model where a firm markets a product with unknown dangerousness. However, research investment may furnish valuable insights. A regulatory agency can grant or revoke marketing authorisation for the product based on its determination of the product’s safety. The firm is liable for civil and penal penalties if it causes harm. According to our study, deploying a combination of market authorisation and civil and penal liabilities can effectively disincentive the firm’s advocacy strategy. There is an emphasis on the need to impose penal liability if such lobbying conduct by the firm is uncovered. We examine the effects of these measures on firms’ motivations to invest in research to mitigate scientific uncertainty and the relationship between public and private research.