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| Author: | Immordino, G. Pagano, M. Polo, M. |
| Title: | Incentives to innovate and social harm: Laissez-faire, authorization or penalties? |
| Journal: | Journal of Public Economics
2011 : AUG, VOL. 95:7-8 p. 864-876 |
| Index terms: | innovation safety liabilities public policy regulations |
| Language: | eng |
| Abstract: | When there is a possibility of firms' research leading to potentially harmful innovations, public intervention may prevent their incentives to research by reducing its expected profitability (average deterrence) and also guide how the innovation is used (marginal deterrence). We compare four policy procedures: laissez faire, ex-post penalties and two types of authorization lenient and strict. In the case of unbounded fines, laissez faire is optimal if the social harm caused by innovation is sufficiently unlikely; otherwise, regulation should impose increasing penalties as innovations turn more dangerous. If penalties are bounded by limited liability, for intermediate levels of expected social harm it is optimal to take in (indifferently) penalties or lenient authorization, whereas strict authorization is optimal if social harm is sufficiently likely. |
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