{"title":"The more the merrier? Disciplinary actions against malpractice","authors":"Limor Hatsor, Artyom Jelnov","doi":"10.1007/s10058-024-00365-x","DOIUrl":null,"url":null,"abstract":"<p>In a world of experience goods, two costly ex-post disciplinary actions can be used against malpractice of firms: consumer lawsuits and government investigation. We distinguish between government effectiveness in detecting ‘bad behavior’ vs. ‘good behavior’ of firms—both play a key role in the model. Our results suggest that while an effective government eliminates malpractice completely, the intervention of an ineffective government may backfire, failing to protect the product safety. The reason is that on top of its ineffectiveness, the government may deter consumers from pursuing lawsuits (crowding-out), augmenting the malpractice of firms compared to an equilibrium without government intervention. Additionally, an improvement in government ability to detect ‘bad behavior’ should be complemented by a reduction of lawsuit cost or an improvement in the ability to detect ‘good behavior’ in order to restore consumer incentive to pursue lawsuits.</p>","PeriodicalId":44537,"journal":{"name":"Review of Economic Design","volume":"232 1","pages":""},"PeriodicalIF":0.3000,"publicationDate":"2024-09-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Review of Economic Design","FirstCategoryId":"96","ListUrlMain":"https://doi.org/10.1007/s10058-024-00365-x","RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q4","JCRName":"ECONOMICS","Score":null,"Total":0}
引用次数: 0
Abstract
In a world of experience goods, two costly ex-post disciplinary actions can be used against malpractice of firms: consumer lawsuits and government investigation. We distinguish between government effectiveness in detecting ‘bad behavior’ vs. ‘good behavior’ of firms—both play a key role in the model. Our results suggest that while an effective government eliminates malpractice completely, the intervention of an ineffective government may backfire, failing to protect the product safety. The reason is that on top of its ineffectiveness, the government may deter consumers from pursuing lawsuits (crowding-out), augmenting the malpractice of firms compared to an equilibrium without government intervention. Additionally, an improvement in government ability to detect ‘bad behavior’ should be complemented by a reduction of lawsuit cost or an improvement in the ability to detect ‘good behavior’ in order to restore consumer incentive to pursue lawsuits.
期刊介绍：
Review of Economic Design comprises the creative art and science of inventing, analyzing and testing economic as well as social and political institutions and mechanisms aimed at achieving individual objectives and social goals. In this age of Economic Design, the accumulated traditions and wealth of knowledge in normative and positive economics and the strategic analysis of game theory are applied with novel ideas in the creative tasks of designing and assembling diverse legal-economic instruments. These include constitutions and other assignments of rights, mechanisms for allocation or regulation, tax and incentive schemes, contract forms, voting and other choice aggregation procedures, markets, auctions, organizational forms, such as partnerships, together with supporting membership and other property rights, and information systems. These designs, the methods of analysis used in their scrutiny, as well as the mathematical techniques and empirical knowledge they employ, along with comparative assessments of the performance of known economic systems and implemented designs, all of these form natural components of the subject matter of Economic Design.
Officially cited as: Rev Econ Design
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