Innovation, Incentives, and Lawyers
posted by Dave Hoffman
Like Gordon and Darian, I spent the weekend at the Kauffman Summer Legal Institute. The topic was “law, innovation and growth.” Of the various papers presented, many were by law professors writing about areas of traditional law-and-entrepreneurship concern, and will likely show up on your radar screens. (Including interesting papers by Gordon & Darian.) But two might not.
Gustavo Manso (MIT) presented the results of an empirical article in which he tested how different compensation schemes motivated subjects to innovate in the performance of a business task. (For the theory, see here.) His basic finding was that while pay-for-performance motivated more innovation, pay that was stacked toward the end of the performance period was more effective. The reason, he hypothesized, was that ordinary pay-for-performance compensation systems punished risk taking early in an enterprise. The paper as a whole was a great example of that rare (but useful) path for corporate research: experimental work.
Gillian Hadfield presented Legal Barriers to Innovation: The Growing Economic Cost of Professional Control over Corporate Legal Markets. The idea is simple: a regulated bar not only increases the cost of legal services but also reduces the amount of innovation in legal products available to the market. As Hadfield argues, “[t]he obstacles to innovation arise from the top-down standardization of legal products, the homogeneity of the legal ideas pool, restrictions imposed on the achievement of economies of scale and scope and restrictions on methods of financing legal innovation.” Basically, I really love this project, not least because it provides another way to think about the costs of, say, the ABA’s monopolistic accreditation practices. Our Bar may be slowly strangling the legal system’s ability to produce those products that would enable American consumers to compete in a global economy.
Anyway, pretty great conference. Oh, and did I mention it was held at a Ritz, on a beach? The sacrifices I make in the pursuit of knowledge…
July 14, 2008 at 9:33 pm
Posted in: Behavioral Law and Economics
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