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Legal Institutions, Innovation and Growth




We build a stylized model of endogenous technological change and analyze the relationship between legal institutions, innovation and growth. Two legal systems are analyzed: a rigid system, where an uncontingent law is written ex ante (before knowing the current technology) and a flexible system where law-makers select the law ex post (after observing the current technology). We show that flexible legal systems dominate in terms of welfare, amount of innovation and output growth in economies at intermediate stages of technological development -- which are periods when legal change is more needed -- while rigid legal systems are preferable at early stages of technological development, when commitment problems are more severe. For mature technologies the two legal systems are shown to be equivalent. Surprisingly, we find that rigid legal systems may induce excessive (greater than first-best) R&D investment and output growth.

Suggested Citation

  • Luca Anderlini & Leonardo Felli & Giovanni Immordino & Alessandro Riboni, 2010. "Legal Institutions, Innovation and Growth," CSEF Working Papers 256, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  • Handle: RePEc:sef:csefwp:256

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    Cited by:

    1. Immordino, Giovanni & Polo, Michele, 2014. "Antitrust, legal standards and investment," International Review of Law and Economics, Elsevier, vol. 40(C), pages 36-50.
    2. Stephen Oluwatobi & Uchenna Efobi & Isaiah Olurinola & Philip Alege, 2015. "Innovation in Africa: Why Institutions Matter," South African Journal of Economics, Economic Society of South Africa, vol. 83(3), pages 390-410, September.
    3. Edo Mahendra & Ubaidillah Zuhdi & Ratnawati Muyanto, 2015. "Determinants of Firm Innovation in Indonesia: The Role of Institutions and Access to Finance," Economics and Finance in Indonesia, Faculty of Economics and Business, University of Indonesia, vol. 61, pages 149-179, December.
    4. 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.
    5. Massenot Baptiste, 2010. "Contract Enforcement, Litigation, and Economic Development," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 10.14, Université de Lausanne, Faculté des HEC, DEEP.
    6. Massenot, Baptiste, 2011. "Financial development in adversarial and inquisitorial legal systems," Journal of Comparative Economics, Elsevier, vol. 39(4), pages 602-608.
    7. Furukawa, Yuichi & Lai, Tat-kei & Sato, Kenji, 2017. "Receptivity and Innovation," MPRA Paper 81536, University Library of Munich, Germany.

    More about this item


    Commitment; Flexibility; Innovation and Growth;

    JEL classification:

    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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