Regulation in Happyville

15 Pages Posted: 27 Apr 2009

See all articles by Francois Salanie

Francois Salanie

National Institute for Agricultural Research (INRA); University of Toulouse 1 - Toulouse School of Economics (TSE)

Nicolas Treich

French National Institute for Agricultural Research (INRA); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: 0000

Abstract

How does risk perception affect risk regulation? Happyville is a society in which citizens wrongly believe that the drinking water supply is contaminated. We discuss conditions under which a benevolent Director of Environment Protection would invest in a water cleanup technology. This holds if the Director is populist, namely if he maximises social welfare based on citizens pessimistic beliefs. More surprisingly, investment in the water cleanup technology may occur if the Director is paternalistic, in the sense that he maximises social welfare based on his own beliefs. The reason is that he must take into account citizens responses to regulation.

Suggested Citation

Salanie, Francois and Treich, Nicolas, Regulation in Happyville (0000). The Economic Journal, Vol. 119, Issue 537, pp. 665-679, April 2009. Available at SSRN: https://ssrn.com/abstract=1375998 or http://dx.doi.org/10.1111/j.1468-0297.2009.02221.x

Francois Salanie (Contact Author)

National Institute for Agricultural Research (INRA) ( email )

21, Allee de Brienne
31000 Toulouse
France

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

Nicolas Treich

French National Institute for Agricultural Research (INRA) ( email )

147, rue de l'Universite
Paris Cedex 07, 78-Yvelines 75338
France
+33 0 1 42 75 90 00 (Phone)
+33 0 1 47 05 99 66 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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