IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/32741.html
   My bibliography  Save this paper

Regulating the Direction of Innovation

Author

Listed:
  • Joshua S. Gans

Abstract

This paper examines the regulation of technological innovation direction under uncertainty about potential harms. We develop a model with two competing technological paths and analyze various regulatory interventions. The optimal regulatory approach depends critically on the magnitude of potential harm relative to technological benefits. Our analysis reveals a motive to double down on harmful technologies in resource allocation across research paths, challenging common intuitions about diversification. We demonstrate that ex post regulatory instruments, particularly liability regimes, outperform ex ante restrictions in many scenarios. These insights have important implications for regulating emerging technologies like artificial intelligence, suggesting the need for informationally-responsive regulatory frameworks.

Suggested Citation

  • Joshua S. Gans, 2024. "Regulating the Direction of Innovation," NBER Working Papers 32741, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:32741
    Note: PR
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w32741.pdf
    Download Restriction: Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or

    for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Daron Acemoglu, 2011. "Diversity and Technological Progress," NBER Chapters, in: The Rate and Direction of Inventive Activity Revisited, pages 319-356, National Bureau of Economic Research, Inc.
    2. Daron Acemoglu, 2023. "Distorted Innovation: Does the Market Get the Direction of Technology Right?," AEA Papers and Proceedings, American Economic Association, vol. 113, pages 1-28, May.
    3. Guerreiro, João & Rebelo, Sérgio & Teles, Pedro, 2023. "Regulating Artificial Intelligence," CEPR Discussion Papers 18625, C.E.P.R. Discussion Papers.
    4. Joshua S Gans, 2025. "How learning about harms impacts the optimal rate of artificial intelligence adoption," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 40(121), pages 199-219.
    5. Andrew Koh & Sivakorn Sanguanmoo, 2024. "Robust Technology Regulation," Papers 2408.17398, arXiv.org.
    6. Ted O'Donoghue & Suzanne Scotchmer & Jacques‐François Thisse, 1998. "Patent Breadth, Patent Life, and the Pace of Technological Progress," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 7(1), pages 1-32, March.
    7. Charles I. Jones, 2024. "The AI Dilemma: Growth versus Existential Risk," American Economic Review: Insights, American Economic Association, vol. 6(4), pages 575-590, December.
    8. Bryan, Kevin A. & Lemus, Jorge, 2017. "The direction of innovation," Journal of Economic Theory, Elsevier, vol. 172(C), pages 247-272.
    9. Cowan, Robin, 1990. "Nuclear Power Reactors: A Study in Technological Lock-in," The Journal of Economic History, Cambridge University Press, vol. 50(3), pages 541-567, September.
    10. Daron Acemoglu & Todd Lensman, 2024. "Regulating Transformative Technologies," American Economic Review: Insights, American Economic Association, vol. 6(3), pages 359-376, September.
    11. Hugo Hopenhayn & Francesco Squintani, 2021. "On the Direction of Innovation," Journal of Political Economy, University of Chicago Press, vol. 129(7), pages 1991-2022.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Shiyun Xia, 2024. "Technology market, product market and aggregate innovation," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 57(3), pages 901-932, August.
    2. Florian Mudekereza, 2025. "Robust Social Planning," Papers 2504.07401, arXiv.org, revised Jun 2025.
    3. Fabio M. Manenti & Luca Sandrini, 2023. "Patents with Simultaneous Innovations: The Patentability Requirements and the Direction of Innovation," Discussion Papers 2303, Budapest University of Technology and Economics, Quantitative Social and Management Sciences, revised Aug 2023.
    4. Esmée Dijk & José Luis Moraga-González & Evgenia Motchenkova, 2023. "Start-up Acquisitions and the Entrant’s and Incumbent’s Innovation Portfolios," Tinbergen Institute Discussion Papers 23-047/VII, Tinbergen Institute.
    5. Christoph Carnehl & Marco Ottaviani & Justus Preusser, 2024. "Designing Scientific Grants," Papers 2410.12356, arXiv.org.
    6. José Luis Moraga‐González & Evgenia Motchenkova & Saish Nevrekar, 2022. "Mergers and innovation portfolios," RAND Journal of Economics, RAND Corporation, vol. 53(4), pages 641-677, December.
    7. Kevin A. Bryan & Heidi L. Williams, 2021. "Innovation: Market Failures and Public Policies," NBER Working Papers 29173, National Bureau of Economic Research, Inc.
    8. Bryan, Kevin A. & Lemus, Jorge, 2017. "The direction of innovation," Journal of Economic Theory, Elsevier, vol. 172(C), pages 247-272.
    9. Stefano Comino & Fabio M. Manenti, 2022. "Patent portfolios and firms’ technological choices," Journal of Economics, Springer, vol. 137(2), pages 97-120, October.
    10. de Bettignies, Jean-Etienne & Ries, John, 2023. "When less is more: Information and the financing of innovation," Journal of Economic Behavior & Organization, Elsevier, vol. 214(C), pages 346-369.
    11. Christoph Carnehl & Marco Ottaviani & Justus Preusser, 2024. "Designing Scientific Grants," NBER Chapters, in: Entrepreneurship and Innovation Policy and the Economy, volume 4, pages 139-178, National Bureau of Economic Research, Inc.
    12. Kaustav Das & Nicolas Klein, 2024. "Do Stronger Patents Lead To Faster Innovation? The Effect Of Clustered Search," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 65(2), pages 915-954, May.
    13. Steven Callander & Hongyi Li, 2024. "Regulating an Innovative Industry," Discussion Papers 2024-07, School of Economics, The University of New South Wales.
    14. Bryan, Kevin A. & Lemus, Jorge & Marshall, Guillermo, 2022. "R&D competition and the direction of innovation," International Journal of Industrial Organization, Elsevier, vol. 82(C).
    15. Steven Callander, 2025. "Regulating AI: The Race Between Policymakers and the Rise of a New Interest Group," NBER Chapters, in: The Political Economy of Artificial Intelligence, National Bureau of Economic Research, Inc.
    16. Yonggyun Kim & Francisco Poggi, 2025. "Strategic Concealment in Innovation Races," CRC TR 224 Discussion Paper Series crctr224_2025_648, University of Bonn and University of Mannheim, Germany.
    17. Frey, Rainer & Hussinger, Katrin, 2006. "The role of technology in M&As: a firm-level comparison of cross-border and domestic deals," Discussion Paper Series 1: Economic Studies 2006,45, Deutsche Bundesbank.
    18. Jin, Laiqun & Dai, Jiaying & Jiang, Weijie & Cao, Kairui, 2023. "Digital finance and misallocation of resources among firms: Evidence from China," The North American Journal of Economics and Finance, Elsevier, vol. 66(C).
    19. Johannes Urpelainen, 2012. "How do electoral competition and special interests shape the stringency of renewable energy standards?," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 14(1), pages 23-34, January.
    20. Alessia Berni & Mariavittoria Cicellin & Stefano Consiglio & Luigi Moschera, 2012. "The evolution of the Italian Temporary Work Agency field: A path dependence perspective," Discussion Papers 10_2012, CRISEI, University of Naples "Parthenope", Italy.

    More about this item

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:32741. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.