The Impact of Regulation on Innovation in the United States: A Cross-Industry Literature Review

The debate over the impact of government regulation on innovation in the United States is framed in the context of the gradual decline of economic regulation since the 1960s, and the gradual increase in social welfare regulation over the same period. Fueling much of the economic deregulation movement has been classical economic theory, which holds that regulation imposes a cost burden on firms, causing them to reallocate their spending away from investments in innovation. On the other side, the environmental movement along with greater public concern about social health and safety has fueled arguments that economic efficiency is a necessary sacrifice for improved social welfare. The “Porter Hypothesis” goes even further, arguing that environmental, health, and safety regulation regularly induces innovation and may even enhance the competitiveness of the regulated industry.