Tort Law and Innovation Incentive

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Abstract

This paper studies the effect of stricter tort law on innovation incentive. Traditional studies argue that stricter tort law hinders product innovation because firms will not risk releasing innovative products for fear of unforeseen liability. In this paper, we show that stricter tort law may promote innovation under an asymmetric duopoly when two firms differ in the cost of safety production. In our model, when liability costs become sufficiently large which causes the less innovative firm to exit the market, the market expansion effect provides more incentive for the more innovative firm to conduct safety and product innovation. We discuss how our results relate to the Calabresian idea (Calabresi, 1970) that the costs of accidents should be shifted to cheaper cost providers.
Original languageEnglish
Publication statusPublished - 14 Dec 2014
EventThe 8th Biennial Conference of Hong Kong Economic Association - Shandong University, Jinan, China
Duration: 13 Dec 201414 Dec 2014
http://www.hkea.org.hk/index.php/events/biennial-conference/9-events/31-8th-conf

Conference

ConferenceThe 8th Biennial Conference of Hong Kong Economic Association
CountryChina
CityJinan
Period13/12/1414/12/14
OtherThe Hong Kong Economic Association and Shangdong University
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ZHANG, T. (2014). Tort Law and Innovation Incentive. Paper presented at The 8th Biennial Conference of Hong Kong Economic Association, Jinan, China.