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

Abstract

This paper addresses the role of product liability for the emergence and development of smart products such as autonomous vehicles (AVs). We analyze how the liability regime affects innovative activities, as well as the timing of market introduction and market penetration of such smart products. We develop a dynamic model in which at each point in time, a potential (monopolistic) innovator decides on how much to invest in the safety stock of the smart product and on the product price, once it has been launched. Calibrating the model to the U.S. car market, our analysis reveals policy-relevant trade-offs when shifting more liability on the producers of AVs. First, while this improves the safety of AVs in the long run, the safety stock is accumulated more slowly. Second, it delays the market introduction of AVs, and also slows down market penetration, which hampers the innovator's incentives for safety investments in the short-and intermediate term. As a result, the safety level of AVs at a given point in time decreases as the liability regime becomes more stringent. Furthermore, there is a threshold for the innovator's burden of liability beyond which she forgoes to develop the AV altogether. Finally, we find that direct AV safety regulation is welfare-superior compared to a stringent liability regime, as it induces higher levels of AV safety in the short and intermediate term.

Lane Management Strategies in a Connected Environment: Analysis of Freight Corridor Scenarios for I-710 in Southern California

“…While several technical, societal, and institutional challenges of autonomous vehicles are still unresolved (36)(37)(38)(39)(40)(41)(42), particularly for establishing liabilities (43)(44)(45), the deployment of CACC-enabled vehicles, which only utilize the lowest level of autonomy and require a human driver on board, is mostly bounded by the infrastructure requirements needed to maximize their benefits.…”

Smart Products: Conceptual Review, Synthesis, and Research Directions*

“…A current application that has taken AI integration and autonomous decision‐making to extremes is the AlphaGo Zero by Google’s AI group DeepMind (Silver et al, 2017). Apart from this hi‐tech niche, the nascent era of self‐driving cars has increased the focus on AI‐based technology that can take autonomous action (Dawid and Muehlheusser, 2019; Schweitzer and van den Hende, 2016). Vehicles that apply highest levels of product intelligence when facing complex circumstances or effectively adapt to complex situations by taking autonomous actions will soon be more than a futuristic vision (Dawid and Muehlheusser, 2019; McGee, 2019).…”