Legal Institutions, Innovation and Growth

45 Pages Posted: 16 Jun 2011

See all articles by Luca Anderlini

Luca Anderlini

Georgetown University - Department of Economics

Leonardo Felli

University of Cambridge; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Giovanni Immordino

CSEF - University of Naples Federico II

Alessandro Riboni

Ecole Polytechnique, Paris - Laboratoire d'Econometrie

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Date Written: June 2011

Abstract

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.

Keywords: Commitment, Flexibility, Growth, Innovation, Legal System

JEL Classification: E61, L51, O3, O43

Suggested Citation

Anderlini, Luca and Felli, Leonardo and Immordino, Giovanni and Riboni, Alessandro, Legal Institutions, Innovation and Growth (June 2011). CEPR Discussion Paper No. DP8433, Available at SSRN: https://ssrn.com/abstract=1865583

Luca Anderlini (Contact Author)

Georgetown University - Department of Economics ( email )

Washington, DC 20057
United States
202-687-6361 (Phone)
202-687-6102 (Fax)

HOME PAGE: http://www.georgetown.edu/faculty/la2/

Leonardo Felli

University of Cambridge ( email )

Trinity Ln
Cambridge, CB2 1TN
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Giovanni Immordino

CSEF - University of Naples Federico II ( email )

Italy

Alessandro Riboni

Ecole Polytechnique, Paris - Laboratoire d'Econometrie ( email )

1 rue Descartes
Paris, 75005
France

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