【Microeconomics and Industrial Organization Speech】 Professor Gerd Mühlheußer - April 1st
Date: 2019-04-01 (Monday)
Venue: Discussion Room 710 (east side of the College of Social Science Building)
Speaker: Professor Gerd Mühlheußer
Background: Professor Gerd Mühlheußer completed his Ph.D. in European Doctoral Programme in Quantitative Economics, University of Bonn, Germany, and London School of Economics, UK in 1999-2002. He is currently full Professor of Economics (W3) at University of Hamburg in Germany. His research fields include Contract Theory, Industrial Organization, Personnel and Organizational Economics, Law & Economics, Behavioral Economics, Economics of Sports, and Environmental Economics.
Title: Smart Products: Liability, Timing of Market Introduction, and Investments in Product Safety (with Herbert Dawid)
Abstract: Smart products such as autonomous vehicles (AVs) are considered ripe for market introduction within the next decade, and they are presumed to fundamentally change mobility in modern societies. While considered safer than conventional cars in the long-run, AVs still will cause accidents, and car manufacturers and computer and software producers are expected to face stiffer liability than they currently do with conventional cars. This might impede innovative activities, thereby delaying the market introduction and market penetration of AVs. We develop a dynamic model framework to investigate these claims. In each period, a potential (monopolistic) innovator decides on investing in a safety stock of AVs, market introduction and output, and we analyze the impact of the liability regime on these intertemporal decisions.
Calibrating the model to the U.S. automobile market, our analysis reveals the pro and cons of a more stringent liability for producers of AVs: While this does increase the safety of AVs in the long run, the safety stock is accumulated more slowly, which delays the market introduction of AVs, and reduces the safety level of early AV generations on the market. Moreover, the innovator might forgo the development of AVs altogether.