NOTE: Congratulations to AofA friend Gayle DeLong of Baruch College on the publication of:
Is “Delitigation” Associated with a Change in Product Safety? The Case of Vaccines
ABSTRACT" This study investigates whether the threat of litigation induces firms to provide safer products in a regulated industry. I analyze whether removing litigation risk or “delitigation” of product liability is associated with a change in the safety of vaccines. Using U.S. nationwide and state-level data, I find that vaccines that were licensed after legislation that preempted most product liability lawsuits are associated with a significantly higher incidence of adverse events than were vaccines that were licensed under a previous regime that permitted consumers to sue. Oaxaca decomposition suggests that the difference is due to the policy change. The results suggest that product safety deteriorates when consumers are no longer able to sue manufacturers.
Deregulation is an important area of study for scholars of industrial organ ization.
Research into the lifting of regulations offers insights into the interaction among
regulatory agencies, ﬁrms and consumers. These insights, posits Joskow (2005), can
inform decision makers on the implications of speciﬁc policies and lead to improved
social welfare. Although a rich literature exists concerning the effects of
deregulation, very little analysis exists concerning an idea that is gaining currency:
the lifting of product liability litigation. ‘‘Delitigation,’’ like deregulation, could
greatly inﬂuence the quality, prices, and safety of goods that ﬁrms sell.
The origins of delitigation stem from the debate among economists concerning
whether regulatio n and litigation are substitutes or complements. Some scholars
argue that product liability lawsuits are an unnecessary expense to regulated ﬁrms.
As long as regulatory standards for safety are binding, argue Philipson et al. (2011),
removing the threat of product liability allows ﬁrms to provide their products more
cheaply with no change in safety. However, Shavell (1984a, b) views regulation and
litigation as essential mechanisms that promote safety in different ways. Ex ante
regulation protects against foreseeable safety issues, while ex post litigation can
force ﬁrms to remedy unfor eseeable side effects.
The competing paradigms above suggest very different empirical outcomes with
regard to delitigation. If a regulator enforces a soci ally optimal level of care, then
safety levels would not change after delitigation. Alternatively, if regulation
provides a minimum standard of care and litigation forces ﬁrms to correct
unforeseen problems with their products, then delitigation would be associated with
deteriorating product safety.
This study shows that vaccine safety deteriorates after consumers are not able to
sue vaccine manufacturers. The ratios of reported adverse events (AEs)
1 to vaccine recipient or AEs to vaccine dose are greater on average for the vaccines that the U.S.
Food and Drug Administration (FDA) licensed after legislation that preempted
product safety lawsuits than before the legislation. Oaxaca decomposition of state-
level data conﬁrm s the result that the vaccines that the FDA licensed after the
legislation are associated with more AEs: both serious and non-serious.
The decrease in safety may be partially due to the expanded array of vaccines that
the legislation allowed. Pharmaceutical companies developed some vaccines that
they otherwise would not have developed had consumer s retained the right to sue.
The risks from newer vaccines may outweigh the beneﬁts: The likelihood of
reporting a serious side effect from a vaccine reaction is greater than of suffering a
serious complication from the disease in the 5 years before the FDA licensed the