Publications

We examine the nature of firms’ reputation-building actions in response to major violations of environmental and social (labor and consumer safety) laws. To do so, we construct a novel dataset of potential reputation-building actions taken by firms, based on hand-classification of 21,932 press releases, in the years preceding and after a major violation (e.g., an oil spill or a major labor lawsuit verdict). We find that while firms do take more reputation-building actions after being exposed for engaging in serious environmental or social misconduct, these actions typically do not benefit the stakeholders affected by the underlying violation. Instead, firms appear to target reputation-building actions at consumers irrespective of the underlying type of violation, and target employees and shareholders after environmental (but not social) violations. In terms of consequences, we find that taking more environmental (social) actions is associated with lower future reductions in penalties for environmental (social) violations. Finally, the stock market responds positively to reputation-building actions targeted at shareholders and customers but not at other stakeholder groups, consistent with investors’ motives on aggregate being financial rather than prosocial.

We propose an empirical model of second-degree price discrimination (2PD) that closely follows the theoretical literature on screening. Crucially, our model captures the covariance, across con- sumers, between the “baseline” willingness to pay (affecting all product versions) and the perceived differentiation between versions. While essential in determining the shape of the optimal 2PD mech- anism, this covariance is challenging to identify in settings with aggregate data and a small number of products/versions, typical of 2PD environments. We develop an experimental framework that resolves these identification challenges. Our experimental-econometric methodology, hence, allows mechanism designers to empirically solve for optimal 2PD mechanisms in a wide range of applications where the differentiation between product versions is based on quality, quantity, timing of purchase, etc. We demonstrate the applicability of our framework by implementing it in the context of seat selection for flights in collaboration with an international airline.

We provide an economics-based review of the pros and cons of ESG disclosures, emphasizing environmental disclosures. Our survey is intended to guide corporate management and regulators in navigating the ESG disclosure landscape. Rather than provide an exhaustive summary of the vast and growing literature on ESG, we assess the main economic arguments for ESG disclosure regulation and the form of this disclosure. We discuss investors’ demand for ESG information and its supply by publicly traded firms. We analyze the case for and the case against mandatory ESG disclosure. Finally, we weigh the efficiency of disclosure-requirement characteristics, assuming mandatory ESG disclosure is warranted. Costs and benefits are difficult to assess and might be unknowable. Even if net benefits are known, people can disagree on ends. Therefore, we intend to be positive rather than prescriptive, giving a line of reasoning readers can employ to reach their own conclusions about what we ought to do.