Anger and Regulation
Article first published online: 29 APR 2014
© The editors of The Scandinavian Journal of Economics 2014.
The Scandinavian Journal of Economics
Volume 116, Issue 3, pages 734–765, July 2014
How to Cite
Di Tella, R. and Dubra, J. (2014), Anger and Regulation. The Scandinavian Journal of Economics, 116: 734–765. doi: 10.1111/sjoe.12068
- Issue published online: 13 JUN 2014
- Article first published online: 29 APR 2014
- Manuscript Accepted: JAN 2014
- Manuscript Received: FEB 2012
- Commercial legitimacy;
- public relations;
We study a model in which agents experience anger when they see a firm that has displayed insufficient concern for the welfare of its clients (i.e., altruism) making high profits. Regulation can increase welfare, for example, through fines (even with no changes in prices). Besides the standard channel (i.e., efficiency), regulation affects welfare through two other channels. (i) Regulation calms down existing consumers, because a reduction in the profits of an unkind firm increases total welfare by reducing consumer anger. (ii) Individuals who were out of the market when they were angry in the unregulated market decide to purchase once the firm is regulated.