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The impact of regulation on innovation

Aghion, Philippe ORCID: 0000-0002-9019-1677, Bergeaud, Antonin and Van Reenen, John ORCID: 0000-0001-9153-2907 (2023) The impact of regulation on innovation. American Economic Review, 113 (11). 2894 - 2936. ISSN 0002-8282

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Identification Number: 10.1257/aer.20210107


We present a framework that can be used to assess the equilibrium impact of regulation on endogenous innovation with heterogeneous firms. We implement this model using French firm-level panel data, where there is a sharp increase in the burden of labor regulations on companies with 50 or more employees. Consistent with the model’s qualitative predictions, we find a fall in the fraction of innovating firms just to the left of the regulatory threshold. Furthermore, we find a reduction in the innovation response of firms to demand shocks just below the threshold. Regulation reduces aggregate innovation by 5.7 percent.

Item Type: Article
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Additional Information: © 2023 American Economic Review
Divisions: Economics
Subjects: H Social Sciences > HB Economic Theory
JEL classification: K - Law and Economics > K3 - Other Substantive Areas of Law > K31 - Labor Law
L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L11 - Production, Pricing, and Market Structure; Size Distribution of Firms
L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L25 - Firm Performance: Size, Diversification and Scope, Age, Profit, and Sales
L - Industrial Organization > L5 - Regulation and Industrial Policy > L51 - Economics of Regulation
O - Economic Development, Technological Change, and Growth > O3 - Technological Change; Research and Development > O31 - Innovation and Invention: Processes and Incentives
O - Economic Development, Technological Change, and Growth > O3 - Technological Change; Research and Development > O34 - Intellectual Property Rights: National and International Issues
Date Deposited: 12 Sep 2023 15:24
Last Modified: 15 Apr 2024 17:30

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