Corruption, regulation, and investment incentives

We study the optimal design of regulation for innovative activities which can have negative social repercussions. compare two alternative regimes may provide firms with different incentives to innovate and produce: lenient authorization strict authorization. find that corruption plays a critical role in choice regime. Corruption exacerbates costs using authorization, under production socially harmful goods is always authorized. In contrast, be beneficial since it mitigate an over-investment problem. Hence, more pervasive favors adoption regime increase welfare.