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The impact of regulation on innovation

Philippe Aghion, Antonin Jean Jacob Bergeaud and John van Reenen

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We present a framework that can be used to assess the equilibrium impact of regulation on endogenous innovation with heterogeneous firms. We implement this model using French firm-level panel data where there is a sharp increase in the burden of labor regulations on companies with 50 or more employees. Consistent with the model's qualitative predictions, we find a sharp fall in the fraction of innovating firms just to the left of the regulatory threshold. Furthermore, we find a sharp reduction in the positive innovation response of firms to exogenous demand shocks just below the regulatory threshold. Using the structure of our model we quantitatively estimate parameters and find that the regulation reduces aggregate equilibrium innovation (and growth) by 5.8% which translates into a consumption equivalent welfare loss of at least 2.3%, approximately doubling the static losses in the existing literature.

Keywords: innovation; regulation; patents; firm size (search for similar items in EconPapers)
JEL-codes: J8 L11 L25 L51 O31 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2021-01-18
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://eprints.lse.ac.uk/121872/ Open access version. (application/pdf)

Related works:
Journal Article: The Impact of Regulation on Innovation (2023) Downloads
Working Paper: The impact of regulation on innovation (2023) Downloads
Working Paper: The Impact of Regulation on Innovation (2023)
Working Paper: The Impact of Regulation on Innovation (2023)
Working Paper: The Impact of Regulation on Innovation (2021) Downloads
Working Paper: The impact of regulation on innovation (2021) Downloads
Working Paper: The impact of regulation on innovation (2021) Downloads
Working Paper: The Impact of Regulation on Innovation (2021) Downloads
Working Paper: The impact of regulation on innovation (2021) Downloads
Working Paper: The Impact of Regulation on Innovation (2021) Downloads
Working Paper: The Impact of Regulation on Innovation (2021) Downloads
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