Private politics and public regulation

Georgy Egorov, Bård Harstad

Research output: Contribution to journalArticlepeer-review

9 Scopus citations

Abstract

Public regulation is increasingly facing competition from "private politics" in the form of activism and corporate self-regulation. However, its effectiveness, welfare consequences, and interaction with public regulation are poorly understood. This article presents a unified dynamic framework for studying the interaction between public regulation, self-regulation, and boycotts. We show that the possibility of self-regulation saves on administrative costs, but also leads to delays. Without an active regulator, firms self-regulate to preempt or end a boycott and private politics is beneficial for activists but harmful for firms. With an active regulator, in contrast, firms self-regulate to preempt public regulation and private politics is harmful for activists but beneficial for firms. Our analysis generates a rich set of testable predictions that are consistent with the rise of private politics over time and the fact that there is more self-regulation and activism in the U.S., while public regulation continues to be more common in Europe.

Original languageEnglish (US)
Pages (from-to)1652-1682
Number of pages31
JournalReview of Economic Studies
Volume84
Issue number4
DOIs
StatePublished - Oct 1 2017

Keywords

  • Activism
  • Boycotts
  • Corporate social responsibility
  • Private politics
  • Regulation
  • Self-regulation
  • War of attrition

ASJC Scopus subject areas

  • Economics and Econometrics

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