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Product-Consumer Substitution and Safety Regulation: Theory and Evidence from Simulation

Author

Listed:
  • Konrad Grabiszewski

    (University of Miami)

  • Alex Horenstein

    (University of Miami)

  • Nicolo Bates

    (University of Miami)

Abstract

We develop a novel theory of safety regulation that incorporates both moral hazard and adverse selection. We test our theory using unique data from more than 2 million observations obtained from iRacing, an online racing simulation. Our theory provides new explanations of phenomena studied in the literature. We offer novel policy implications; in particular, we introduce the concept of two-dimensional regulation.

Suggested Citation

  • Konrad Grabiszewski & Alex Horenstein & Nicolo Bates, 2016. "Product-Consumer Substitution and Safety Regulation: Theory and Evidence from Simulation," Working Papers 2016-05, University of Miami, Department of Economics.
    • Handle: RePEc:mia:wpaper:2016-06
    as

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    File URL: https://www.herbert.miami.edu/_assets/files/repec/WP2016-06.pdf
    File Function: First version, 2016
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    safety regulation; adverse selection; moral hazard Publication Status: Under Review;
    All these keywords.

    JEL classification:

    • K2 - Law and Economics - - Regulation and Business Law
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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