Innovative externality inclusion - by Duncan McClements

Over the past hundred years, the total amount of regulation on activity in the economy has increased dramatically across the developed world. This may have brought counterfactual benefits, such cleaner water, safer consumer goods and greater privacy, at the expense of costs such as sluggish bureaucracies, lowered business formation rates and slower development of new products. All of these effects share the key trait of being mostly internalised - citizens of the country that implements the regulations bear and receive about 100% of the costs and benefits. However, a key negative effect of regulation, namely the reduction in innovation, affects all countries around the world due to technological discovery being a public good in the long run - not just the country which implemented the regulation. This post determines the change in the optimal level of regulation that results if foreign welfare is viewed as equally valuable to native upon accounting for the effects of technological chan

Over the past hundred years, the total amount of regulation on activity in the economy has increased dramatically across the developed world. This may have brought counterfactual benefits, such cleaner water, safer consumer goods and greater privacy, at the expense of costs such as sluggish bureaucracies, lowered business formation rates and slower development of new products. All of these effects share the key trait of being mostly internalised - citizens of the country that implements the regulations bear and receive about 100% of the costs and benefits. However, a key negative effect of reg