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Anger and Regulation

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Abstract

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.

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