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

Dawid H, Muehlheusser G. Smart Products: Liability, Investments in Product Safety, and the Timing of Market Introduction. Journal of Economic Dynamics and Control. 2022;134: 104288.We analyze the role of product liability for the emergence and development of smart products such as autonomous vehicles (AVs). We develop, and calibrate to the U.S. car market, a dynamic model where a (monopolistic) innovator chooses safety stock investments, the timing of market introduction, and the product price. Inducing higher long-term product safety through a strict (partial) liability rule reduces short-term safety investments and slows down AV market penetration. By contrast, negligence-based liability fosters initial investments without hampering long-term product safety. However, too stringent liability might forestall investments in the development of AVs and their market introduction