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Impact of Regulation on Industrial Innovation
Impact of Regulation on Industrial Innovation Author:Grabowski Purchase of this book includes free trial access to www.million-books.com where you can read more than a million books for free. This is an OCR edition with typos. Excerpt from book: 4 ECONOMIC REGULATION INTRODUCTION In contrast to the newer health, safety, and environment regulations, economic regulation of profits and entry has ha... more »d a rather long history in the United States. Generally, the reason for initiating regulation was a concern over excessively high and/or discriminatory prices or other abuses due to monopoly power, or a fear of the results of destructive competition. While many of the categories of regulation discussed in the previous section directly affect innovation in a rather obvious manner, e.g., the FDA premarket approval process for new drugs, the regulation-innovation relationship in economic regulation is often indirect and subtle. As we shall observe, in many cases it can be demonstrated that economic regulation can affect innovation simultaneously in both positive and negative ways. Only in exceptional cases can the effect of regulation on innovation be clearly documented. The reason is that the standard of performance must be based on a conjecture of what the rate of innovation would have been in the absence of regulation. Thus there is considerable uncertainty and ignorance about the general relationship between regulation and innovation in economically regulated industries. Of course, in certain cases reasonably sound conclusions can be drawn, as we shall indicate. The industries subject to economic regulation include electric power, telephone, natural gas, oil and gas pipelines, railroads, trucking, airlines, and radio and television broadcasting. For convenience, we shall group the industries under three main headings: rate-of-return regulation of public utilities, regulated competition in transportation, and regulation of broadcasting. We omit any discussion of general price controls. RATE-OF-RETURN REGULATION...« less