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Incentives to innovate and social harm: Laissez-faire, authorization or penalties?

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  • Immordino, Giovanni
  • Pagano, Marco
  • Polo, Michele

Abstract

When firms' research can lead to potentially harmful innovations, public intervention may thwart their incentives to undertake research by reducing its expected profitability (average deterrence) and may guide the use of innovation (marginal deterrence). We compare four policy regimes: laissez faire, ex-post penalties and two forms of authorization – lenient and strict. If fines are unbounded, laissez faire is optimal if the social harm from innovation is sufficiently unlikely; otherwise, regulation should impose increasing penalties as innovation becomes more dangerous. If fines are bounded by limited liability, for intermediate levels of expected social harm it is optimal to adopt (indifferently) penalties or lenient authorization, while strict authorization becomes optimal if social harm is sufficiently likely.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 95 (2011)
Issue (Month): 7 ()
Pages: 864-876

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Handle: RePEc:eee:pubeco:v:95:y:2011:i:7:p:864-876

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Web page: http://www.elsevier.com/locate/inca/505578

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Keywords: Innovation; Liability for harm; Safety regulation; Authorization;

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References

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Citations

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Cited by:
  1. Luca Anderlini & Leonardo Felli & Giovanni Immordino & Alessandro Riboni, 2010. "Legal Institutions, Innovation and Growth," CSEF Working Papers 256, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  2. Giovanni Immordino & Michele Polo, 2012. "Antitrust in Innovative Industries: the Optimal Legal Standards," Working Papers 434, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  3. Giovanni Immordino & Michele Polo, 2011. "Optimal Legal Standards in Antitrust: Traditional v. Innovative Industries," Working Papers 420, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.

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