Berkeley Program in Law and Economics
Law and Growth Economics: A Framework for Research
- Author(s): Cooter, Robert D.
- Edlin, Aaron
- et al.
Many law and economics models concern static efficiency and redistribution. The standard analysis of dynamic industries requires lawmakers to balance faster innovation against lower consumer prices. Sustained growth dominates these effects, so law and growth economics should focus on maximizing it. Law can increase the growth rate by making innovation more profitable. We distinguish innovation into phases -- discovering ideas, developing them with capital and labor, and marketing innovations. Strengthening intellectual property law and weakening antitrust law increases the costs of developing ideas, and also increases the revenues from marketing innovations. To maximize the profitability of innovation, law should balance these two effects. We use these ideas to develop a framework for law and growth economics.