Boston University School of Law

Innovation and Optimal Punishment, with Antitrust Applications
Keith N. Hylton and Haizhin Lin
Boston University School of Law Working Paper 08-33


This paper modifies the optimal penalty analysis by incorporating investment incentives with external benefits.  In the models examined, the recommendation that the optimal penalty should internalize the marginal social harm is no longer valid as a general rule.  We focus on antitrust applications.  In light of the benefits from innovation, the optimal policy will punish monopolizing firms more leniently than suggested in the standard static model.  It may be optimal not to punish the monopolizing firm at all, or to reward the firm rather than punish it.  We examine the precise balance between penalty and reward in the optimal punishment scheme.

Keywords: optimal law enforcement, optimal antitrust penalty, monopolization, innovation, internalization, strict liability, static penalty

JEL Classification: D42, K14, K21, K42, L41, L43

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Suggested Citation:

Keith N. Hylton and Haizhin Lin, "Innovation and Optimal Punishment, with Antitrust Applications"

Contact Information

Keith N. Hylton

Boston University School of Law
765 Commonwealth Avenue
Boston, MA 02215


Haizhen Lin
Assistant Professor of Business Economics
Indiana University, Bloomington
Kelley School of Business