An Activity-Generating Theory of Regulation
AbstractWe propose an activity-generating theory of regulation. When courts make errors, tort litigation becomes unpredictable and as such imposes risk on firms, thereby discouraging entry, innovation, and other socially desirable activity. When social returns to activity are higher than private returns, it may pay the society to generate some information ex ante about how risky firms are and to impose safety standards based on that information. In some situations, compliance with such standards should entirely preempt tort liability; in others, it should merely reduce penalties. By reducing litigation risk, this type of regulation can raise welfare.
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Bibliographic InfoArticle provided by University of Chicago Press in its journal The Journal of Law and Economics.
Volume (Year): 56 (2013)
Issue (Month): 1 ()
Pages: 1 - 38
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Web page: http://www.journals.uchicago.edu/JLE/
Other versions of this item:
- Joshua Schwartzstein & Andrei Shleifer, 2009. "An Activity-Generating Theory of Regulation," NBER Working Papers 14752, National Bureau of Economic Research, Inc.
- Joshua Schwartzstein & Andrei Shleifer, . "An Activity-Generating Theory of Regulation," Working Paper 19524, Harvard University OpenScholar.
- D62 - Microeconomics - - Welfare Economics - - - Externalities
- K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
- K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
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