American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
The Impact of Regulation on Innovation
American Economic Review
(pp. 2894–2936)
Abstract
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.Citation
Aghion, Philippe, Antonin Bergeaud, and John Van Reenen. 2023. "The Impact of Regulation on Innovation." American Economic Review 113 (11): 2894–2936. DOI: 10.1257/aer.20210107Additional Materials
JEL Classification
- D22 Firm Behavior: Empirical Analysis
- K31 Labor Law
- L11 Production, Pricing, and Market Structure; Size Distribution of Firms
- L25 Firm Performance: Size, Diversification, and Scope
- L51 Economics of Regulation
- O31 Innovation and Invention: Processes and Incentives
- O34 Intellectual Property and Intellectual Capital