TABLE D-1

Selected Attributes of Regulations and Their Theoretical Impacts on Innovation

Regulation

Compliance Burden

Compliance Innovation

“Dud” Inventions

Innovation

Flexibility
Command and control Higher - -
Incentives based Lower - -
Specification standards Higher More -
Performance standards Lower Less -
Information
Compliance value added Lower Lower -
Compliance uncertainty Higher - -
Stringency
Moving target Lower Less None/ Incremental
Disruptive regulation Higher More Radical

•   Social regulation tends to stimulate social innovation; however, more often than not, it stifles market innovation.

•   Some evidence suggests more stringent and disruptive social regulation promotes more radical innovation, while the “moving target approach” of gradually increasing stringency over time results in incremental innovation.

•   Regulation that does not require innovation for compliance will generally stifle innovation, although it may spur circumventive innovation if the firm or industry can find a path to escape the regulatory constraints.

•   Regulation that does require compliance innovation has an unclear impact on innovation.

•   A tradeoff exists between market innovation that benefits the firms and that which serves only to meet the compliance standards of regulation.



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