Explaining and predicting the impact of regulation on innovation: towards a dynamic model

Although much work has been done on the regulation and governance of innovation, it provides few formal analytical tools to enable us to learn about the dynamics of the regulatory system in terms of the interaction between regulators and firms. If governance occurs in a context of mutual interdependence and power asymmetries, governments inevitably find themselves with little independence to design and effectively conduct and enforce governance schemes. This paper aims to fill some of the gaps in the public policy literature by proposing a model to generate and validate behavioural indicators for governance of innovation and policy analysis. The model proposed helps to explore the conditions under which the firm would be more likely to innovate. In addition, it enables us to identify the preconditions determining the willingness and ability of regulators to design and enforce schemes that influence the innovative behaviour of the firm.