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Please use this identifier to cite or link to this item: https://hdl.handle.net/2445/185073
Corruption, regulation, and investment incentives
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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. Hence, more pervasive corruption favors the adoption of a strict authorization regime and may increase welfare.
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DE CHIARA, Alessandro and MANNA, Ester. Corruption, regulation, and investment incentives. European Economic Review. 2022. Vol. 142, num. 104009, pags. 1-21. ISSN 0014-2921. [consulted: 7 of June of 2026]. Available at: https://hdl.handle.net/2445/185073