Working Paper BETA #2016-36

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Title : Fostering safer innovations through regulatory policies: The case of hazardous products

Author(s) : Julien Jacob, Marc Hubert-Depret, Cornel Oros

Abstract : We consider the case of a firm selling a product which can cause damage to consumers (e.g. a product containing hazardous chemicals which can cause diseases). The firm has the possibility to make an effort in R&D in order to discover a new substitution product. This R&D could lead to a new but more dangerous product than the historical product (situation of “regrettable substitution”). We compare four policy regimes (two forms of ex ante approval, civil liability, and a combination of approval and civil liability) according to their impact on the firm’s decisions (R&D, and technological choice) and their consequences on social welfare. We find that the ranking between policy regimes mainly depends on the public regulator’s expertise (for approval), the type of the risk which is under consideration and/or the potential impact of R&D on the degree of dangerousness.

Key-words : public regulation, innovation, technical choice, (health) hazard

JEL Classification : D21, D62, L51, K13