Regulation and Technical Change: Some Largely Unexplored Influences

It is widely recognized that in the mid-1960s government regulation entered a new era with the passage of a series of laws aimed at, among other things, protecting the environment, ensuring worker health and safety, and assuring the safety and performance of consumer products. A number of observers, both within and outside government, have expressed concern that this new use of regulation is fundamentally altering the behavior and performance of US enterprise.Singled out for special attention has been the fear that the pace and direction of technological advance are likely to be altered. Some observations are made about the possible influences that regulation may have on the level and character of innovative activity that the firm may choose to undertake. Four influences are: 1. Regulation may divert resources that otherwise might have been used to fund research. 2. Regulation may change the firm's ability to calculate the payoffs to investments in research and development. 3. Regulation may change the optimal institutional patterns for performing certain types of research. 4. Regulation may alter the proportion of benefits that are properly classifiable as ''externalities,'' and this may change the nature of the research the firm is likely to undertake.