Legal Institutions, Innovation and Growth
Georgetown University - Department of Economics
London School of Economics - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Centre for Economic Policy Research (CEPR)
Università degli Studi di Salerno - Centre for Studies in Economics and Finance (CSEF)
University of Montreal - Department of Economics
June 15, 2011
CESifo Working Paper Series No. 3489
We analyze the relationship between legal institutions, innovation and growth. We compare a rigid (law set ex-ante) legal system and a flexible one (law set after observing current technology). The flexible system dominates in terms of welfare, amount of innovation and output growth at intermediate stages of technological development - periods when legal change is needed. The rigid system is preferable at early stages of technological development, when (lack of) commitment problems are severe. For mature technologies the two legal systems are equivalent. We find that rigid legal systems may induce excessive (greater than first-best) R&D investment and output growth.
Number of Pages in PDF File: 43
Keywords: legal system, commitment, flexibility, innovation, growth
JEL Classification: O300, O430, L510, E610working papers series
Date posted: June 15, 2011
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