Private Politics and Public Regulation
NBER Working Paper No. 19737
We develop a dynamic game to explore the interaction between regulation and private policies, such as self-regulation by firms and activism. Without a public regulator, the possibility of self-regulation is bad for the firm, but good for activists who are willing to maintain a costly boycott to raise the likelihood of self-regulation. Results are reversed when the regulator is present: the firm then self-regulates to preempt public regulation, while activists start and continue boycotts to raise the likelihood of such regulation. Our analytical results describe when a boycott is likely, and when it may be expected to be short and/or successful. The model generates a rich set of testable comparative statics.
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