NBER Publications by Joshua Schwartzstein

We ask whether regulation can usefully supplement litigation in a model of optimal social control of harmful externalities. In our model, firms choose activity levels in addition to precautions. In contrast to the usual analysis, we assume that social returns to activity are higher than private returns before taking harmful externalities into account. We also assume that both courts and regulators make errors in assessing whether it is efficient for a given firm to take precautions. We show that regulation can, in some circumstances, improve resource allocation. Regulatory preemption of litigation may be efficient when social returns to activity exceed the expected harm that could result from a firm taking too few precautions. The optimal structure of law enforcement is influenced by the d...

We present a model of coarse thinking, in which individuals group situations into categories, and transfer the informational content of a given message from situations in a category where it is useful to those where it is not. The model explains how uninformative messages can be persuasive, particularly in low involvement situations, and how objectively informative messages can be dropped by the persuader without the audience assuming the worst. The model sheds light on product branding, the structure of product attributes, and several puzzling aspects of mutual fund advertising.