Innovation Sticks: The Limited Case for Penalizing Failures to Innovate

52 Pages Posted: 19 Aug 2014 Last revised: 11 Sep 2014

Ian Ayres

Yale University - Yale Law School; Yale University - Yale School of Management

Amy Kapczynski

Yale University - Law School

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Date Written: August 19, 2014

Abstract

When policymakers and academics think about designing optimal innovation incentives, they almost exclusively limit their considerations to alternative types of reward incentives. But in this article, we show that under specific circumstances innovation sticks – potential penalties for failure to innovate – can play a valuable role in our innovation policy, either alone or in conjunction with innovation carrots. What’s more, we provide examples of several innovation sticks that already have been used with apparent success, including the Federal Corporate Average Fuel Economy (CAFE) standards. Finally, we apply our approach to a new area to which we think innovation sticks may be well-suited: the problem of car fatalities. Our model suggests that a relatively simple system of yardstick penalties could help reduce national auto fatalities by as much 20%, simply by bringing laggard entities (companies and states) up to the median.

Suggested Citation

Ayres, Ian and Kapczynski, Amy, Innovation Sticks: The Limited Case for Penalizing Failures to Innovate (August 19, 2014). Yale Law & Economics Research Paper No. 507. Available at SSRN: https://ssrn.com/abstract=2483310

Ian Ayres (Contact Author)

Yale University - Yale Law School ( email )

P.O. Box 208215
New Haven, CT 06520-8215
United States
203-432-7101 (Phone)
203-432-2592 (Fax)

Yale University - Yale School of Management

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

Amy Kapczynski

Yale University - Law School ( email )

P.O. Box 208215
New Haven, CT 06520-8215
United States

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