Innovation in Risky Industries under Liability Law: The Case of Double-Impact Innovations

Civil liability is widely recognized as providing incentives to control risks. We study civil liability as a means to also provide incentives to design safer technologies in risky industries. We compare two liability rules (strict liability and negligence) in situations in which double-impact innovations can be designed, i.e., when R&D has an impact both on the cost of care and on the level of risk. The two rules do not provide the same incentives. The way in which the regulator defines the standard of due care has an impact on the efficiency of the negligence rule, but this rule remains dominated by strict liability, especially when R&D mainly has an impact on the level of risk.