We analyze optimal policy design when firms' research activity may lead to socially harmful innovations. Public intervention, affecting the expected profitability of innovation, may both thwart the incentives to undertake research (average deterrence) and guide the use to which innovation is put...

Multiple bank lending creates an incentive to overborrow and default. When creditor rights are poorly protected and collateral value is volatile, this incentive leads to rationing and non-competitive interest rates. If banks share information about past debts via credit reporting systems, the...

We analyze the effects of judicial errors on the innovative activity of firms. Successful research investment allows to take a new action that may be ex-post welfare enhancing or welfare decreasing (illegal). Deterrence in this setting works by affecting both the incentives to invest in research...

Stricter laws require more incisive and costlier enforcement. Since enforcement activity depends both on available tax revenue and the honesty of officials, the optimal legal standard of a benevolent government is increasing in per-capita income and decreasing in officials’ corruption. In...

We model an enforcement problem where firms can take a known and lawful action or seek a profitable innovation that may enhance or reduce welfare. The legislator sets fines calibrated to the harmfulness of unlawful actions. The range of fines defines norm flexibility. Expected sanctions guide...

We derive a set of optimal environmental regulations in the presence of asymmetric information about pollution abatement costs, where compliance may have to be induced through appropriate monitoring and enforcement measures. The regulator commits to monitoring of compliance with incentive...

This note shows that, by reducing agency costs, an environmental regulation may enhance pollution-reducing innovation while at the same time increasing firms'private benefit.

We build an equilibrium model of prostitution where clients and sex workers choose to demand and supply sex under three legal regimes: prohibition, regulation and laissez-faire. The key feature is the endogenous evolution of the risk as a consequence of policy changes. We calibrate the model to...

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...

We study a supply chain model where competing manufacturers located around a circle contract with privately informed and exclusive retailers. The number of brands in the market (determined by the manufacturers’ zero profit condition) depends on the level of asymmetric information within supply...