Self-Regulation in Private and Public Politics

This paper presents a theory of self-regulation by a firm or an industry acting collectively in the context of private and public politics. In private politics an activist identifies a social issue, makes a demand on the firm, and threatens a harmful campaign. The firm self-regulates to forestall the campaign or reduce the campaign intensity. Self-regulation is decreasing in the campaign cost and the residual harm to the firm of conceding to a campaign. The activist moderates its demand to increase the forestalling self-regulation, which can lead the firm to incur a campaign. The public politics threat is that a legislature imposes more stringent regulation on the firm. The firm self-regulates to the boundary of the gridlock interval, which negates the power of an agenda-setter and forestalls public politics. Private politics, however, can lead the firm to self-regulate to the interior of the gridlock interval. The firm lobbies to reduce the cost of its self-regulation, and self-regulation and lobbying are substitutes. The activist increases the saliency of the issue to the constituents of pivotal legislators, which increases the cost of lobbying, causing the firm to self-regulate more and lobby less.