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Private Politics and Public Regulation

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  • Georgy Egorov
  • Bård Harstad

Abstract

Private politics are often introduced by market participants in the absence of public regulation. But when is private politics enough, efficient, or better than administratively costly public regulation? We present a novel framework in which we can study the interaction between regulation, self-regulation by the Örm, and boycotts by the activists in a dynamic game. Our main results are the following. (i) The possibility to self-regulate saves on administrative costs, it therefore also leads to delays. (ii) The possibility to self-regulate benefits activists but harms the firm without the public regulator in place, the reverse is true with the regulator being present in the game. (iii) Without the public regulator, a boycott raises the likelihood of self-regulation, whereas if the regulator is present, it raises the likelihood of public regulation. (iv) Activism is a strategic complement to self-regulation, but a strategic substitute to public regulation. (v) In addition, the analysis generates a rich set of testable predictions regarding the regulatory outcomes and the duration of boycotts.

Suggested Citation

  • Georgy Egorov & Bård Harstad, 2015. "Private Politics and Public Regulation," Discussion Papers 1580, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    • Handle: RePEc:nwu:cmsems:1580
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    More about this item

    Keywords

    Private politics; boycotts; war of attrition; activism; regulation; self-regulation; corporate social responsibility (CSR) JEL Classification: D78; L31; L51;
    All these keywords.

    JEL classification:

    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs; Social Entrepreneurship
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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