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507. Public Policies in Investment Intensive Industries
In this paper we review some recent work on public intervention in economic environments where
firms undertake investments in research or in physical assets, and then choose appropriate business practices to extract pro
ts from the outcomes of the investment process. Public policies may take different forms: the release of an authorization; the setting of
nes and damages for liability; or the choice of legal standards in antitrust law enforcement. The business practices are privately pro
table but may be welfare enhancing or socially harmful. When expectations are optimistic, public policies face a trade-off between ex-ante effects on investment, that suggest hands off, and ex-post control of practices when harmful, that requires intervention. Our general result suggests that public policies should be softer when innovation is an important source of welfare improvements.
Last updated January 21, 2014