Research

Select Working Papers In Circulation

Government Standards, Activists, and the Prospects for Industry Self-Regulation (With Craig Volden)

We develop a game-theoretic model wherein a government establishes a standard for product quality while possessing extremely limited enforcement abilities, and a firm chooses whether to comply with, or exceed, the government quality standard. Following the firm’s product choice, an activist decides whether or not to exert costly effort to learn the firm’s choice and publicize that choice to the marketplace. Equilibrium results identify when the activist will play this informational role and when the firm will self-regulate in response to the activist’s threat. Moreover, we identify complementarities that exist between government standards and activist engagement. Governments lacking enforcement capacity can rely on informative activists, and those activists become more effective when the government advocates a high quality standard.