Corruption and the case for safe-harbor regulation

Alessandro De Chiara and Ester Manna

Economics Letters, 2022, vol. 216, issue C

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.

Keywords: Corruption; Innovation; Liability; Regulatory capture; Safe harbor (search for similar items in EconPapers)
JEL-codes: D73 K42 L51 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:216:y:2022:i:c:s0165176522001537

DOI: 10.1016/j.econlet.2022.110546

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