Innovation-Friendly Regulation: The Sunset of Regulation, the Sunrise of Innovation
24 Pages Posted: 2 Jan 2015 Last revised: 15 Apr 2015
Date Written: November 1, 2014
In the last years, the approach of governments towards innovation has changed dramatically. The myth of innovation as an activity carried out by lonely inventors in their garages or in the laboratories of large private companies, in the context of which there was no or little place for governmental intervention is passé. In times of crisis, the advancement of innovation and economic growth has been included in the list of priorities of most governments. Governments expect to play more than a supporting role and go beyond the traditional economic incentives and innovation policy documents. It is time to call regulators to the center of the stage and tell them to start playing the innovation tune. Regulation and governance can play either an impeding or a facilitative role, depending on the instruments used. Regulation may give or take away incentives to innovate; it may accelerate or delay the introduction of innovations into the market; it may adapt itself to the speed of the innovation process or lag behind. In this article, I shall focus on two aspects of this regulatory approach to innovation: the pacing problem and the lack of information as to the regulation of the innovation process.
Very often regulation simply lags behind or tries to slow down the ‘pace’ of innovation: whereas innovation moves at the speed of sound, it can ‘happen’ anywhere and anytime; regulators are limited by slow-going procedures and the need to confer some stability to regulations. In addition, regulators are being confronted with complex innovations in the different fields of emerging technologies and apparently straightforward innovations that challenge existing regulatory paradigms (e.g. Aereo, Airbnb, Uber) and about which regulators know very little of. Do these innovations bring along risks and how should they be regulated? In this article, I argue that the ‘pacing’ and ‘informational’ problems could be solved by enacting two highly overlooked regulatory instruments: sunset clauses and experimental legislation. Both of them confer adaptability to the regulatory framework, set the stopwatch on obsolete legislation and create room for regulatory flexibility and learning. Sunsetting limits the temporal scope of regulation, while experimental legislation can limit both the temporal and geographic scopes or the object of regulation. Experimenting with laws can be particularly useful to test new regulations on a small-scale basis, gather more facts on the response of the market to an innovative product, and improve regulation as more information becomes available. Both temporary legislative instruments can be part of a more innovation-friendly approach to regulation, combining on the one hand a certain openness to innovation, and on the other a responsible regulatory framework.
Keywords: innovation, sunset clauses, regulation, pacing problem, governance, sharing economy
JEL Classification: O31, O32, K2, L51, L43
Suggested Citation: Suggested Citation