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Law and Economics, 2.0

Law and Economics, 2.0

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Robert E. Litan, Ph.D., Vice President, Research and Policy for the Kauffman Foundation, responds to the questions: How much law, and what kinds of law, are essential for innovation and growth? And what laws or legal institutions may inhibit both?
Robert E. Litan, Ph.D., Vice President, Research and Policy for the Kauffman Foundation, responds to the questions: How much law, and what kinds of law, are essential for innovation and growth? And what laws or legal institutions may inhibit both?

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Published by: The Ewing Marion Kauffman Foundation on Mar 12, 2009
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05/10/2014

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Discovery
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KAUFFMAN Thoughtbook
 
2009
E x c E r p t f r o m
Fourth in an ongoing series, the
Kauffman Thoughtbook 2009 
captures what we arethinking, learning, and discovering about education, entrepreneurship, and advancinginnovation. This collection of more than forty essays is written by the talented KauffmanFoundation associates, partners, and experts who are pursuing the principles and visionset by our founder, Ewing Kauffman.REQUEST YOUR COMPLIMENTARY COPY AT
kauan.g
©2008 by the Ewing Marion Kauffman Foundation. All rights reserved.
 
102
Lw nd Econoics, 2.0:
understnding the Link Between Lw,Innovtion, nd Growth
RoBeRT e. lITan, Ph.D.
Vic Prsidt, Rsrch d Picy, ewig mri Kuff Fudti
It is widely nderstood tht the “rle o lw” is essentil or econoies togrow, nd ths or living stndrds o their popltions to dvnce.In trn, it lsois widely recognized tht growth is best chieved throgh contined innovtion:the developent o new prodcts, new services, nd new wys o doing thingstht ke  society ore prodctive.Bt how ch lw, nd wht kinds o lw, re essentil or innovtion nd growth?and wht lws or legl instittions y inhibit both?We know soe nswers to these qestions bt re r ro knowing the ll. orexple, we do know tht certin eleents o  legl inrstrctre re essentilto proote econoic ctivity generlly nd innovtion in prticlr:
•Individualswillnotsaveandrmswillnotinvestwithoutclearproperty
rights, enorced i necessry by n iprtil jdicil syste, in the interesto profts they ern on these investents.
•Entrepreneursandtheirrmsmusthavesomerightsto—orrewardsfor—
new, coercilly sel knowledge they develop. at the se tie, ny
Excerpt ro
Kauffman Thoughtbook 2009
. ©2008 by the Ewing mrion Kn ondtion. all rights reserved.
 
103
sch rights shold not be too brod, or else they will discorge othersro coing p with coercilly sel ides on their own.
•Individualsandrmsareunlikelytoconductbusinesswiththirdparties
they don’t know nless n instittion or body they trst recognizes ndenorces their contrcts.
•Banksandothernancialinstitutionswillnotlendwithoutwell-dened
rights to the collterl bcking their lons.
•Companiescannotattractoutsideinvestors—andthusmaynotbeable
to grow—nless the libility o shreholders is liited to the size o theirstockholdings.
•Similarly,individualsandinstitutionsaremorelikelytoinvestinnancial
instrents tht cn be esily nd re redily trded. Exchnges (oncephysicl, incresingly virtl) st exist to cilitte sch trding, s stinvestor-relevnt rles reqiring disclosre o ccrte nd tiely inortion.These re jst  ew o the legl propositions tht re now widely nderstoodto oster econoic progress. Bt there is still ch tht we do not know botprecisely which lws nd legl instittions best proote innovtion nd growth.To help fnd ot, the Kn ondtion hs lnched n bitios, long-terinititive to nd reserch in this iportnt re by leding legl nd econoicscholrs. We lso hope to encorge  new genertion o legl scholrs to devotetheir energies nd tlents to helping s nderstnd wht chnges in lw nd leglinstittions ight ccelerte growth.ortntely, this inititive is not writing on  blnk slte. Thnks to severldecdes o nding by other ondtions nd to  growing body o litertre on
- Lw nd Econoics, 2.0 -

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