Corruption and the Regulation of Innovation

UB Economics Working Papers E19/390

42 Pages Posted: 18 Nov 2019

See all articles by Alessandro De Chiara

Alessandro De Chiara

Central European University (CEU) - Department of Economics; University of Barcelona; University of Barcelona - Barcelona Economic Analysis Team (BEAT)

Ester Manna

University of Barcelona

Date Written: August 26, 2019

Abstract

We study the optimal design of regulation for innovative activities which can have negative social repercussions. We compare two alternative regimes which may provide firms with different incentives to innovate and produce: lenient authorization and strict authorization. We find that corruption plays a critical role in the choice of the authorization regime. Corruption exacerbates the costs of using lenient authorization, under which production of socially harmful goods is always authorized. In contrast, corruption can be socially beneficial under strict authorization, since it can mitigate an over-investment problem. In the second part of the paper, we explore the design of bonuses, taxes, and ex-post liability to improve the regulatory outcome.

Keywords: Authorization, Collusion, Corruption, Extortion, Regulatory capture, Safety regulation

JEL Classification: D73, K42, L51

Suggested Citation

De Chiara, Alessandro and Manna, Ester, Corruption and the Regulation of Innovation (August 26, 2019). UB Economics Working Papers E19/390, Available at SSRN: https://ssrn.com/abstract=3482547 or http://dx.doi.org/10.2139/ssrn.3482547

Alessandro De Chiara (Contact Author)

Central European University (CEU) - Department of Economics ( email )

Nador u. 9.
Budapest H-1051
Hungary

University of Barcelona ( email )

Gran Via de les Corts Catalanes, 585
Barcelona, 08007
Spain

University of Barcelona - Barcelona Economic Analysis Team (BEAT) ( email )

Gran Via de les Corts Catalanes
Barcelona, 08007
Spain

Ester Manna

University of Barcelona ( email )

Gran Via de les Corts Catalanes, 585
Barcelona, 08007
Spain

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