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Regulation in Happyville

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  • François Salanié
  • Nicolas Treich

Abstract

How does risk perception affect risk regulation? Happyville is a society in which citizens wrongly believe that the drinking water supply is contaminated. We discuss conditions under which a benevolent Director of Environment Protection would invest in a water cleanup technology. This holds if the Director is populist, namely if he maximises social welfare based on citizens' pessimistic beliefs. More surprisingly, investment in the water cleanup technology may occur if the Director is paternalistic, in the sense that he maximises social welfare based on his own beliefs. The reason is that he must take into account citizens' responses to regulation. Copyright © The Author(s). Journal compilation © Royal Economic Society 2009.

Suggested Citation

  • François Salanié & Nicolas Treich, 2009. "Regulation in Happyville," Economic Journal, Royal Economic Society, vol. 119(537), pages 665-679, April.
  • Handle: RePEc:ecj:econjl:v:119:y:2009:i:537:p:665-679
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    Cited by:

    1. Jean-Michel Salles, 2011. "Valuing biodiversity and ecosystem services: why linking economic values with Nature?," Working Papers 11-24, LAMETA, Universitiy of Montpellier, revised Dec 2011.
    2. Philippe De Donder & Marie-Louise Leroux, 2012. "Behavioral Biases and Long Term Care Annuities: A Political Economy Approach," CESifo Working Paper Series 3972, CESifo Group Munich.
    3. repec:bla:jemstr:v:26:y:2017:i:2:p:454-483 is not listed on IDEAS
    4. Clément, Valérie & Moureau, Nathalie & Vidal, Marion, 2009. "À la recherche des biens sous tutelle," L'Actualité Economique, Société Canadienne de Science Economique, vol. 85(4), pages 383-401, décembre.
    5. Rheinberger, Christoph M. & Herrera-Araujo, Daniel & Hammitt, James K., 2016. "The value of disease prevention vs treatment," Journal of Health Economics, Elsevier, vol. 50(C), pages 247-255.
    6. Hilton, Denis & Charalambides, Laetitia & Demarque, Christophe & Waroquier, Laurent & Raux, Charles, 2014. "A tax can nudge: The impact of an environmentally motivated bonus/malus fiscal system on transport preferences," Journal of Economic Psychology, Elsevier, vol. 42(C), pages 17-27.
    7. De Donder Philippe & Leroux Marie-Louise, 2013. "Behavioral Biases and Long-Term Care Insurance: A Political Economy Approach," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 14(2), pages 551-575, May.
    8. Réquillart, Vincent & Soler, Louis-Georges & Zang, Yu, 2016. "Quality standards versus nutritional taxes: Health and welfare impacts with strategic firms," Journal of Health Economics, Elsevier, vol. 50(C), pages 268-285.
    9. Dorothée Brécard, 2017. "Consumer misperception of eco-labels, green market structure and welfare," Journal of Regulatory Economics, Springer, vol. 51(3), pages 340-364, June.
    10. Philippe Mahenc, 2017. "Honest versus Misleading Certification," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 26(2), pages 454-483, June.
    11. Langlais, Eric, 2010. "Safety and the Allocation of Costs in Large Accidents," MPRA Paper 25710, University Library of Munich, Germany.
    12. Christoph M. Rheinberger & Nicolas Treich, 2017. "Attitudes Toward Catastrophe," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 67(3), pages 609-636, July.
    13. Till Grüne-Yanoff & Holger Rosencrantz, 2011. "Beneficial safety decreases," Theory and Decision, Springer, vol. 70(2), pages 195-213, February.
    14. Bruce Owen, 2009. "Old Media Policy Failures, New Media Policy Challenges," Discussion Papers 08-038, Stanford Institute for Economic Policy Research.
    15. Fredrik Carlsson & Dinky Daruvala & Henrik Jaldell, 2012. "Do administrators have the same priorities for risk reductions as the general public?," Journal of Risk and Uncertainty, Springer, vol. 45(1), pages 79-95, August.
    16. Stavros A. Drakopoulos & Ioannis Theodossiou, 2016. "Workers’ risk underestimation and occupational health and safety regulation," European Journal of Law and Economics, Springer, vol. 41(3), pages 641-656, June.
    17. Rachel Croson & Nicolas Treich, 2014. "Behavioral Environmental Economics: Promises and Challenges," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 58(3), pages 335-351, July.
    18. Huhtala, Anni & Remes, Piia, 2017. "Quantifying the social costs of nuclear energy: Perceived risk of accident at nuclear power plants," Energy Policy, Elsevier, vol. 105(C), pages 320-331.
    19. Huhtala, Anni & Remes, Piia, 2016. "Dimming Hopes for Nuclear Power: Quantifying the Social Costs of Perceptions of Risks," Working Papers 57, VATT Institute for Economic Research.
    20. Johansson-Stenman, Olof, 2006. "Mad Cows, Terrorism and Junk Food: Should Public Policy Reflect Subjective or Objective Risks?," Working Papers in Economics 194, University of Gothenburg, Department of Economics.
    21. repec:eme:aheszz:s0731-219920140000024006 is not listed on IDEAS

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