An Activity-Generating Theory of Regulation

Joshua Schwartzstein () and Andrei Shleifer

No 14752, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We propose an activity-generating theory of regulation. When courts make errors, tort litigation becomes unpredictable and as such imposes risk on firms, thereby discouraging entry, innovation, and other socially desirable activity. When social returns to innovation are higher than private returns, it may pay the society to generate some information ex ante about how risky firms are, and to impose safety standards based on that information. In some situations, compliance with such standards should entirely preempt tort liability; in others, it should merely reduce penalties. By reducing litigation risk, this type of regulation can raise welfare.

JEL-codes: D62 K13 K40 L51 (search for similar items in EconPapers)
Date: 2009-02
New Economics Papers: this item is included in nep-law and nep-reg
Note: LE
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Citations: View citations in EconPapers (6)

Published as Joshua Schwartzstein & Andrei Shleifer, 2013. "An Activity-Generating Theory of Regulation," Journal of Law and Economics, University of Chicago Press, vol. 56(1), pages 1 - 38.

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Journal Article: An Activity-Generating Theory of Regulation (2013)
Working Paper: An Activity-Generating Theory of Regulation (2013)
Working Paper: An Activity-Generating Theory of Regulation
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