Corruption, regulation, and investment incentives

Alessandro De Chiara and Ester Manna

European Economic Review, 2022, vol. 142, issue C

Abstract: We study the optimal design of regulation for innovative activities which can have negative social repercussions. We compare two alternative regimes which may provide firms with different incentives to innovate and produce: lenient authorization and strict authorization. We find that corruption plays a critical role in the choice of the authorization regime. Corruption exacerbates the costs of using lenient authorization, under which production of socially harmful goods is always authorized. In contrast, corruption can be socially beneficial under strict authorization, since it can mitigate an over-investment problem. Hence, more pervasive corruption favors the adoption of a strict authorization regime and may increase welfare.

Keywords: Authorization; Collusion; Corruption; Extortion; Innovation; Investment incentives; Regulatory capture (search for similar items in EconPapers)
JEL-codes: D73 K42 L51 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:142:y:2022:i:c:s0014292121002798

DOI: 10.1016/j.euroecorev.2021.104009

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