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Publications
Publications
  • 2009
  • Working Paper

Anger and Regulation

By: Rafael Di Tella and Juan Dubra
  • Format:Print
  • | Language:English
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Abstract

We propose a model where voters experience an emotional cost when they observe a firm that has displayed insufficient concern for other people's welfare (altruism) in the process of making high profits. Even with few truly altruistic firms, an equilibrium may emerge where all firms pretend to be kind and refrain from charging "abusive" prices to their customers. Our main result is that, as competition decreases, the set of parameters for which such pooling equilibria exist becomes smaller, and firms are more likely to anger consumers. Regulation can increase welfare, for example, through fines (even if there are no changes in prices). We illustrate these gains in a monopoly setting, where regulation affects welfare through three channels: (i) a reduction in monopoly price leads to the production of units that cost less than their value to consumers (standard channel); (ii) regulation calms down existing consumers because a reduction in the profits of an "unkind" firm increases total welfare by reducing consumer anger (anger channel); and (iii) individuals who were out of the market when they were excessively angry in the unregulated market, decide to purchase once the firm is regulated, reducing the standard distortions described in the first channel (mixed channel).

Keywords

Governing Rules, Regulations, and Reforms; Consumer Behavior; Monopoly; Corporate Social Responsibility and Impact; Emotions; Welfare

Citation

Di Tella, Rafael, and Juan Dubra. "Anger and Regulation." NBER Working Paper Series, No. 15201, August 2009.

About The Author

Rafael M. Di Tella

Business, Government and the International Economy
→More Publications

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    By: Vincent Pons, Rafael Di Tella and Galit Goldstein
More from the Authors
  • Does Social Media Cause Polarization? Evidence from Access to Twitter Echo Chambers during the 2019 Argentine Presidential Debate By: Rafael Di Tella, Ramiro H. Gálvez and Ernesto Schargrodsky
  • The 2012 Spanish Labor Reform: Lifting All Boats or Levelling Down? By: Vincent Pons, Rafael Di Tella, Santiago Botella and Elena Corsi
  • The Trouble with TCE By: Vincent Pons, Rafael Di Tella and Galit Goldstein
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