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Products Liability and Economic Activity: An Empirical Analysis of Tort Reform’s Impact on Businesses, Employment, and Production

Posted by on Monday, January 28, 2013 in Articles, Volume 66, Volume 66, Number 1, Volumes.

For decades, advocates of tort reform have argued that expansive products liability stifles economic activity by imposing excessive and unpredictable liability costs on businesses. Although politicians aspiring to create jobs, attract businesses, and improve the economy have relied on this argument to enact hundreds of reforms, it has largely gone empirically untested. No longer. Using the most comprehensive dataset to date on products liability reforms and economic activity, I find that many reforms that restrict the scope of products liability improve economic conditions. Specifically, these reforms increase the number of businesses, employment, and production in the industries that face most of the products liability claims: the manufacturing, retail, distribution, wholesale, and insurance industries. However, several other popular reforms have either a weak effect or no effect on economic activity. My results have important implications for recently enacted reforms and proposed legislation: while many of these reforms will improve economic conditions as lawmakers hope, others will have no effect. In the current economy, as business groups intensify their demands for tort reform, my findings provide critical evidence for courts and legislatures that are reassessing the appropriate scope of products liability.