Regulation, Innovation, and Administrative Law: A Conceptual Framework

REGUL4TION 1261 adopts improved technologies that reduce the externalities generated per unit of output.'Two key aspects of innovation and investment accordingly deserve attention in environmental, health, and safety regulation: market innovation and social innovation.Market innovation encompasses development and adoption of new products and processes that will increase market measures of output per unit of labor or other input and thus increase productivity as measured by traditional national income accounting.Social innovation includes the development and adoption of new products and processes that are less polluting aind safer or that otherwise deliver improved social performance, thereby facilitating the underlying goal of environmental, health, and safety regulation.This Article addresses the interaction between regulation 9 and innovation from the perspective of administrative law, focusing on regulatory tools, institutional arrangements, and government decisional processes.It concludes that productivity problems do not justify abandoning environmental, health, and safety goals.However, it also finds that existing command-and-control regulatory tools must be modified or replaced in order to reduce adverse impacts on market innovation and to provide incentives for social innovation.Part I summarizes the principal characteristics of the current regulatory system.Part II develops a conceptual framework describing the 8. Changing patterns in consumption in response to changes in relative prices and changing preferences may also reduce spillovers per unit of output.Pollution, for example, is disproportionately associated with basic materials processing, such as nonferrous smelting and steelmaking.As the United States produces relatively more services than durables, as raw materials resource prices rise, and as consumers perhaps shift preferences away from consumption of large cars, spillovers generated per unit of average output will fall.But in most cases these factors alone will likely be insufficient to offset the absolute growth in output.9.