Private Politics and Public Regulation

Georgy Egorov and Bard Harstad

Discussion Papers from Northwestern University, Center for Mathematical Studies in Economics and Management Science

Abstract: Private politics are often introduced by market participants in the absence of public regulation. But when is private politics enough, efficient, or better than administratively costly public regulation? We present a novel framework in which we can study the interaction between regulation, self-regulation by the Örm, and boycotts by the activists in a dynamic game. Our main results are the following. (i) The possibility to self-regulate saves on administrative costs, it therefore also leads to delays. (ii) The possibility to self-regulate benefits activists but harms the firm without the public regulator in place, the reverse is true with the regulator being present in the game. (iii) Without the public regulator, a boycott raises the likelihood of self-regulation, whereas if the regulator is present, it raises the likelihood of public regulation. (iv) Activism is a strategic complement to self-regulation, but a strategic substitute to public regulation. (v) In addition, the analysis generates a rich set of testable predictions regarding the regulatory outcomes and the duration of boycotts.

Keywords: Private politics; boycotts; war of attrition; activism; regulation; self-regulation; corporate social responsibility (CSR) JEL Classification: D78; L31; L51 (search for similar items in EconPapers)
Date: 2015-02-01
New Economics Papers: this item is included in nep-reg
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Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Private Politics and Public Regulation (2017)
Working Paper: Private Politics and Public Regulation (2013)
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