Regulating the direction of innovation

Joshua Gans

Journal of Public Economics, 2025, vol. 246, issue C

Abstract: This paper examines the regulation of technological innovation direction under uncertainty about potential harms. We develop a model with two competing technological paths and analyse various regulatory interventions. The optimal regulatory approach depends critically on the magnitude of potential harm relative to technological benefits. Our analysis reveals a motive to double down on harmful technologies in resource allocation across research paths, challenging common intuitions about diversification. We demonstrate that ex post regulatory instruments, particularly liability regimes, outperform ex ante restrictions in many scenarios. These insights have important implications for regulating emerging technologies like artificial intelligence, suggesting the need for informationally-responsive regulatory frameworks.

Keywords: Direction; Innovation; Technological change; Diversity; Artificial intelligence; Externalities; Pigouvian taxation; Liability regime; Uncertainty (search for similar items in EconPapers)
JEL-codes: L51 O33 (search for similar items in EconPapers)
Date: 2025
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Working Paper: Regulating the Direction of Innovation (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:246:y:2025:i:c:s0047272725000738

DOI: 10.1016/j.jpubeco.2025.105375

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