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Legal Institutions, Innovation and Growth

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  • Luca Anderlini
  • Leonardo Felli
  • Giovanni Immordino
  • Alessandro Riboni

Abstract

We analyze the relationship between legal institutions, innovation and growth. We compare a rigid (law set ex-ante) legal system and a flexible one (law set after observing current technology). The flexible system dominates in terms of welfare, amount of innovation and output growth at intermediate stages of technological development - periods when legal change is needed. The rigid system is preferable at early stages of technological development, when (lack of) commitment problems are severe. For mature technologies the two legal systems are equivalent. We find that rigid legal systems may induce excessive (greater than first-best) R&D investment and output growth.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3489.

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Date of creation: 2011
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Handle: RePEc:ces:ceswps:_3489

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Keywords: legal system; commitment; flexibility; innovation; growth;

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References

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  1. Rafael La Porta & Florencio Lopez-de-Silanes & Cristian Pop-Eleches & Andrei Shleifer, 2004. "Judicial Checks and Balances," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 112(2), pages 445-470, April.
  2. Immordino, Giovanni & Pagano, Marco & Polo, Michele, 2009. "Incentives to Innovate and Social Harm: Laissez-Faire, Authorization or Penalties?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7280, C.E.P.R. Discussion Papers.
  3. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2003. "Law and finance: why does legal origin matter?," Journal of Comparative Economics, Elsevier, vol. 31(4), pages 653-675, December.
  4. Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 100(4), pages 1169-89, November.
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  10. Anderlini, Luca & Felli, Leonardo & Riboni, Alessandro, 2010. "Why Stare Decisis ?," Economics Papers from University Paris Dauphine, Paris Dauphine University 123456789/7720, Paris Dauphine University.
  11. B. Zorina Khan & Kenneth L. Sokoloff, 2001. "The Early Development of Intellectual Property Institutions in the United States," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 15(3), pages 233-246, Summer.
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Cited by:
  1. Massenot, Baptiste, 2010. "Financial development in adversarial and inquisitorial legal systems," MPRA Paper 27098, University Library of Munich, Germany.
  2. Massenot, Baptiste, 2010. "Contract enforcement, litigation, and economic development," MPRA Paper 27501, University Library of Munich, Germany.
  3. 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.

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