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Regulation And Opportunism: How Much Activism Do We Need?

  • Aleix Calveras

    ()

  • Juan-José Ganuza

    ()

  • Gerard Llobet

    ()

    (CEMFI, Centro de Estudios Monetarios y Financieros)

This paperanalyzes the current trend towards firms' self-regulation as opposed to the formal regulation of a negative externality. Firms respond to increasing activism in the market (conscious consumers that take into account the external effects of their purchase) by providing more socially responsible goods. However, because regualtion is the outcome of a political process, an increase in activism might imply and inefficiently higher externality level. This may happen when a majority of non-activist consumers collectively free-ride on conscious consumers. By determining a softer than optimal regulation, they benefit from the behavior of firms, yet they have access to cheaper (although less efficient) goods.

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File URL: http://www.cemfi.es/ftp/wp/0508.pdf
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Paper provided by CEMFI in its series Working Papers with number wp2005_0508.

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Date of creation: Oct 2005
Handle: RePEc:cmf:wpaper:wp2005_0508
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  27. Aleix Calveras & Juan José Ganuza & Gerard Llobet, 2005. "Regulation and opportunism: How much activism do we need?," Economics Working Papers 935, Department of Economics and Business, Universitat Pompeu Fabra.
  28. Rafael Repullo, 2005. "Liquidity, Risk-Taking, And The Lender Of Last Resort," Working Papers wp2005_0504, CEMFI.
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  31. Manuel Arellano & Jinyong Hahn, 2005. "Understanding Bias In Nonlinear Panel Models: Some Recent Developments," Working Papers wp2005_0507, CEMFI.
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