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Corruption and the Regulation of Innovation

Alessandro De Chiara and Ester Manna ()

No 2019/390, UB Economics Working Papers from Universitat de Barcelona, Facultat d'Economia i Empresa, UB School of Economics

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. In the second part of the paper, we explore the design of bonuses, taxes, and ex-post liability to improve the regulatory outcome.

Keywords: Authorization; Collusion; Corruption; Extortion; Regulatory capture; Safety regulation (search for similar items in EconPapers)
JEL-codes: D73 K42 L51 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2019
New Economics Papers: this item is included in nep-law and nep-reg
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