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Legal institutions, innovation and growth

Felli, Leonardo and Anderlini, Luca and Immordino, Giovanni and Riboni, Alessandro (2010) Legal institutions, innovation and growth. CESF working papers, 256. University of Naples, Naples, Italy.

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Identification Number: 256

Abstract

We build a stylized model of endogenous technological change and analyze the relationship between legal institutions, innovation and growth. Two legal systems are analyzed: a rigid system, where an uncontingent law is written ex ante (before knowing the current technology) and a flexible system where law-makers select the law ex post (after observing the current technology). We show that flexible legal systems dominate in terms of welfare, amount of innovation and output growth in economies at intermediate stages of technological development -- which are periods when legal change is more needed -- while rigid legal systems are preferable at early stages of technological development, when commitment problems are more severe. For mature technologies the two legal systems are shown to be equivalent. Surprisingly, we find that rigid legal systems may induce excessive (greater than first-best) R&D investment and output growth.

Item Type: Monograph (Working Paper)
Official URL: http://www.csef.it/
Additional Information: © 2010 CESF
Subjects: H Social Sciences > HB Economic Theory
Sets: Departments > Economics
Research centres and groups > Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD)
Research centres and groups > Financial Markets Group (FMG)
Collections > Economists Online
Collections > LSE Financial Markets Group (FMG) Working Papers
Date Deposited: 12 Apr 2011 14:18
Last Modified: 27 Feb 2014 15:35
URI: http://eprints.lse.ac.uk/id/eprint/35481

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