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 innovation 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 InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14752.
Date of creation: Feb 2009
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Other versions of this item:
- D62 - Microeconomics - - Welfare Economics - - - Externalities
- K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability
- K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-02-28 (All new papers)
- NEP-LAW-2009-02-28 (Law & Economics)
- NEP-REG-2009-02-28 (Regulation)
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