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

Emeric Henry, Marco Loseto () and Marco Ottaviani
Additional contact information
Marco Loseto: University of Chicago, Chicago, Illinois 60637

Management Science, 2022, vol. 68, issue 7, 5330-5347

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 preintroduction 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)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://dx.doi.org/10.1287/mnsc.2021.4164 (application/pdf)

Related works:
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)
Working Paper: Regulation with Experimentation: Ex Ante Approval, Ex Post Withdrawal, and Liability (2018)
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:inm:ormnsc:v:68:y:2022:i:7:p:5330-5347

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().