Regulation with Experimentation: Ex Ante Approval, Ex Post Withdrawal, and Liability

Marco Ottaviani and Marco Loseto
Authors registered in the RePEc Author Service: Emeric Henry

No 13224, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We analyze the optimal mix of ex ante experimentation and ex post learning for the dynamic adoption of activities with uncertain payoffs in a two-phase model of information diffusion. In a first pre-introduction phase, costly experimentation is undertaken to decide whether to adopt an activity or abandon experimentation. In a second stage following adoption, learning can continue possibly at a different pace while the activity remains in place; the withdrawal option is exercised following the accumulation of sufficiently bad news. We compare from a law and economics perspective the performance of three regulatory frameworks commonly adopted to govern private experimentation and adoption incentives: liability, withdrawal, and authorization regulation. Liability should be preempted to avoid chilling of activities that generate large positive externalities, consistent with the preemption doctrine. Liability should be used to discourage excessive experimentation for activities that generate small positive externalities. Authorization regulation should be lenient whenever it is used, consistent with the organization of regulation in a number of areas ranging from product safety to antitrust.

Keywords: Authorization regulation; Liability; Withdrawal; Experimentation; Preemption doctrine (search for similar items in EconPapers)
JEL-codes: D18 D83 K13 K2 M38 (search for similar items in EconPapers)
Date: 2018-10
New Economics Papers: this item is included in nep-law, nep-mic and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP13224 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Regulation with Experimentation: Ex Ante Approval, Ex Post Withdrawal, and Liability (2022)
Working Paper: Regulation with Experimentation: Ex Ante Approval, Ex Post Withdrawal, and Liability (2022)
Working Paper: Regulation with Experimentation: Ex Ante Approval, Ex Post Withdrawal, and Liability (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:13224

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP13224

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().