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Incentives to Innovate and Social Harm:Laissez-Faire, Authorization or Penalties?

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Author Info
Giovanni Immordino
Marco Pagano
Michele Polo

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Abstract

We analyze optimal policy design when firms' research activity may lead to socially harmful innovations. Public intervention, affecting the expected pro tability of innovation, may both thwart the incentives to undertake research (average deterrence) and guide the use to which innovation is put (marginal deterrence). We show that public intervention should become increasingly stringent as the probability of social harm increases, switching First from laissez-faire to a penalty regime, then to a lenient authorization regime, and finally to a strict one. In contrast, absent innovative activity, regulation should rely only on authorizations, and laissez-faire is never optimal. Therefore, in innovative industries regulation should be softer.

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Paper provided by IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University in its series Working Papers with number 349.

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Date of creation: 2009
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Handle: RePEc:igi:igierp:349

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  2. Daron Acemoglu & Thierry Verdier, 2000. "The Choice between Market Failures and Corruption," American Economic Review, American Economic Association, vol. 90(1), pages 194-211, March. [Downloadable!] (restricted)
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  3. Shavell, Steven, 2007. "Do excessive legal standards discourage desirable activity?," Economics Letters, Elsevier, vol. 95(3), pages 394-397, June. [Downloadable!] (restricted)
  4. Immordino, Giovanni & Pagano, Marco, 2008. "Legal Standards, Enforcement and Corruption," CEPR Discussion Papers 7071, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  5. Gary S. Becker, 1968. "Crime and Punishment: An Economic Approach," Journal of Political Economy, University of Chicago Press, vol. 76, pages 169. [Downloadable!] (restricted)
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  6. Joshua Schwartzstein & Andrei Shleifer, 2009. "Litigation and Regulation," NBER Working Papers 14752, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Banerjee, A.V., 1997. "A Theory of Misgovernance," Working papers 97-4, Massachusetts Institute of Technology (MIT), Department of Economics.
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  9. Stigler, George J, 1970. "The Optimum Enforcement of Laws," Journal of Political Economy, University of Chicago Press, vol. 78(3), pages 526-36, May-June. [Downloadable!] (restricted)
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  10. Edward L. Glaeser & Andrei Shleifer, 2003. "The Rise of the Regulatory State," Journal of Economic Literature, American Economic Association, vol. 41(2), pages 401-425, June.
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  11. Gual, Jordi & Hellwig, Martin F. & Perrot, Anne & Polo, Michele & Rey, Patrick & Schmidt, Klaus M. & Stenbacka, Rune, 2005. "An Economic Approach to Article 82," Discussion Papers in Economics 745, University of Munich, Department of Economics. [Downloadable!]
  12. Mookherjee, Dilip & Png, I P L, 1994. "Marginal Deterrence in Enforcement of Law," Journal of Political Economy, University of Chicago Press, vol. 102(5), pages 1039-66, October. [Downloadable!] (restricted)
  13. Giovanni Immordino & Michele Polo, 2008. "Judicial Errors and Innovative Activity," CSEF Working Papers 196, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 18 Jul 2008. [Downloadable!]
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  14. Kaplow, Louis, 1995. "A Model of the Optimal Complexity of Legal Rules," Journal of Law, Economics and Organization, Oxford University Press, vol. 11(1), pages 150-63, April.
  15. Banerjee, Abhijit V, 1997. "A Theory of Misgovernance," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1289-1332, November.
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This page was last updated on 2009-11-23.

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