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Michele Polo
, 2009
"... Abstract: We analyze optimal policy design when
rms research activity may lead to socially harmful innovations. Public intervention, a¤ecting the expected pro
tability of in-novation, may both thwart the incentives to undertake research (average deterrence) and guide the use to which innovation is ..."
Abstract
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Abstract: We analyze optimal policy design when
rms research activity may lead to socially harmful innovations. Public intervention, a¤ecting the expected pro
tability of in-novation, may both thwart the incentives to undertake research (average deterrence) and guide the use to which innovation is put (marginal deterrence). We show that public in-tervention should become increasingly stringent as the probability of social harm increases, switching rst from laissez-faire to a penalty regime, then to a lenient authorization regime, and nally to a strict one. In contrast, absent innovative activity, regulation should rely only on authorizations, and laissez-faire is never optimal. Therefore, in innovative industries regulation should be softer.