The more the merrier? Disciplinary actions against malpractice

Limor Hatsor () and Artyom Jelnov

MPRA Paper from University Library of Munich, Germany

Abstract: In a world of experience goods, two costly ex-post disciplinary actions can be used against malpractice of firms: consumer lawsuits and government investigation. We distinguish between government exectiveness in detecting 'bad behavior' vs. 'good behavior' of firms - both play a key role in the model. Our results suggest that while an exective government eliminates malpractice completely, the intervention of an ineffective government may backfire, failing to protect the product safety. The reason is that on top of its inexectiveness, the government may deter consumers from pursuing lawsuits (crowding-out), augmenting the malpractice of firms compared to an equilibrium without government intervention. Additionally, an improvement in government ability to detect 'bad behavior' should be complemented by a reduction of lawsuit cost or an improvement in the ability to detect 'good behavior' in order to restore consumer incentive to pursue lawsuits.

Keywords: Managerial; Decision; Economics (search for similar items in EconPapers)
JEL-codes: K13 L15 (search for similar items in EconPapers)
Date: 2024-08-07
New Economics Papers: this item is included in nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/122433/1/MPRA_paper_122433.pdf original version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:122433

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().