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Corruption and the case for safe-harbor regulation

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  • De Chiara, Alessandro
  • Manna, Ester

Abstract

We study whether the joint adoption of ex-ante regulation and ex-post liability leads to a higher level of welfare in a setting in which firms invest resources to develop an innovative product that can have negative social repercussions. We allow for firm-regulator corruption and compare two alternative regulatory regimes: lenient authorization and strict authorization. Corruption favors strict authorization and strengthens the case for making firms immune from ex-post liability so as to encourage ex-ante investment. By contrast, when lenient authorization is adopted, firms should not be insulated from liability. Hence, liability should be more severe when corruption is less common.

Suggested Citation

  • De Chiara, Alessandro & Manna, Ester, 2022. "Corruption and the case for safe-harbor regulation," Economics Letters, Elsevier, vol. 216(C).
    • Handle: RePEc:eee:ecolet:v:216:y:2022:i:c:s0165176522001537
    DOI: 10.1016/j.econlet.2022.110546
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    References listed on IDEAS

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    2. De Chiara, Alessandro & Manna, Ester, 2022. "Corruption, regulation, and investment incentives," European Economic Review, Elsevier, vol. 142(C).
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    More about this item

    Keywords

    Corruption; Innovation; Liability; Regulatory capture; Safe harbor;
    All these keywords.

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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