We are grateful to Fabio Pinna for research assistance. We greatly benefited from comments by two anonymous referees, the editor Harold Cole, Giuseppe Dari-Mattiacci, Erik Eyster, Esther Hauk, David Kershaw, Carmine Guerriero, Stefan Voigt, and seminar participants at the LSE Law and Economic Forum (London), at the Amsterdam Center for Law and Economics (Amsterdam), and at the CESifo Conference on Law and Economics (Munich). Alessandro Riboni gratefully acknowledges the financial support of the Fonds québécois de la recherche sur la societé et la culture (FQRSC). Please address correspondence to: Leonardo Felli, Department of Economics, LSE, Houghton Street, London WC2A 2AE, U.K. Phone: +44-207-955-7525. Fax: +44-207-955-6592. E-mail: firstname.lastname@example.org.
LEGAL INSTITUTIONS, INNOVATION, AND GROWTH
Article first published online: 17 JUL 2013
© (2013) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association
International Economic Review
Volume 54, Issue 3, pages 937–956, August 2013
How to Cite
ANDERLINI, L., FELLI, L., IMMORDINO, G. and RIBONI, A. (2013), LEGAL INSTITUTIONS, INNOVATION, AND GROWTH. International Economic Review, 54: 937–956. doi: 10.1111/iere.12023
- Issue published online: 17 JUL 2013
- Article first published online: 17 JUL 2013
- Manuscript Revised: OCT 2012
- Manuscript Received: JUN 2011
- Fonds québécois de la recherche sur la societé et la culture (FQRSC)
We analyze the relationship between legal institutions, innovation, and growth. We compare a rigid legal system (the law is set before the technological innovation) and a flexible one (the law is set after observing the new 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 commitment problems are severe. For mature technologies, the two legal systems are equivalent. We find that rigid legal systems may induce excessive R&D investment.