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This leads to a signalling strategy by the Less aggressive campaign result for Soft firms such that sending the Hard type message is increasing in if it sends <math>\gammam_H\,</math> and than if it sends <math>p_Sm_S\,</math>, and decreasing in but the campaign given <math>\eta\,</math> and <math>\betam_H\,</math>is more aggressive than it would have been based on prior information.
The Assume the campaign lasts for a duration 1, and the target chooses to fight or not at time 0, A fight lasts for <math>\delta \in \left[0,1\right)\,</math>.
Extentions Extensions include:*Opportunistic Behavior - the activist makes the most aggressive demand it can if it wins, so in equilibrium, target will fight*Committment Commitment not to act opportunistically - the activist commits to get the firm not increase demand if it wins, so campaign will be less aggressive, thus inducing responsive target to accept and recalcitrant target to yield by choosing a campaign that avoids fightingfight
===Reputation===
There is a section on credibility and commitment that shows that reputation on behalf of the activist can sustain both credibility and commitment. At least I assume it does, I couldn't take anymore of this model.
Baron Diermeier (2006) - Strategic Activism And Nonmarket Strategy (view source)
Revision as of 19:14, 29 September 2020
, 19:14, 29 September 2020no edit summary
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*This page is referenced in [[BPP Field Exam Papers]]
Which has the following comparative statics:
*The demand <math>x_D^*\,</math> are strictly increasing in <math>\gamma ,p, x_0\,</math> (the greater the marginal benefit <math>\gamma\,</math>, the more responsive a target <math>\p,\,</math>, and the better current practices <math>\x_0\,</math>, the higher is demand)*The demand <math>x_D^*\,</math> are strictly decreasing in <math>\alpha, \beta, \eta\,</math> (the higher costs of a campaign lead to lower demands)
*Reward is increasing in <math>\gamma\,</math> and decreasing in <math>\alpha, \eta\,</math>
*Harm is increasing in <math>\gamma,p\,</math> and decreasing in <math>\eta,\beta\,</math>
This suggests that more responsive firms will be threatened with harm over rewards, and that harm will be preferred when rewards are costly. If the internet reduces <math>\beta\,</math>, then we would expect to see campaigns with higher demands that emphasize more harm after its adoption.
===Why Are Campaigns Negative?===
Campaigns are most likely to be negative because;
*There is an industry effect - rewards alone would increase the profit of the firm, whereas harm decreases them. Therefore harm acts to discourage investment in the industry, which reduces the scale of the industry and hence the objectional practises
*There is an endogenous selection effect - targets are selected by the responsiveness <math>p\,</math>, and both the demand and the harm are increasing in <math>p\,</math>, whereas effect on <math>r^*\,</math> may be decreasing in <math>p\,</math>is ambiguous
*Rewards may be costly to provide (i.e. <math>\alpha\,</math> maybe high)
*Harm can induce proactive self-regulation (see later)
===Target Selection===
Targets are selected, all else equal, when:
*<math>v(x_0x_D) - v(x_Dx_0)\,</math> is high - the campaign gives high utility to the activist
*Likewise if <math>\gamma\,</math> is high
*If <math>p\,</math> is high
*If there are low costs to the campaign (<math>\eta, \alpha, \beta\,</math>)
===The Market for Activists===
Activists must be supported by citizens and could adopt strategies or either rewards, harm, or both.
The expected cost to only rewards (in equilibrium) are:
:<math>C^r = \frac{p \gamma^2}{4 \eta^2 \alpha}\,</math>
:<math>\frac{G^r}{C^r} = \frac{G^h}{C^h} = \frac{G^*}{C^*} = 1\,</math>
Where <math>C^h\,</math> and <math>C^*\,</math> are the expected costs for activists that only use harm and that use both, respectively.
However, the demands are as follows:
So the activist that uses both harm and rewards accomplishes more.
===Self-Regulation===
Assume that the activist can commit not to conduct a campaign once a concession is made. Such a committment could be credible if the activist had a reputation.
The activist will not commit conduct a campaign if:
:<math>v(\hat{x}) \ge u(x_D^*, r^*, h^*)\,</math>, or <math>\hat{x}-x_0 \ge \frac{p}{2}(x_D^*-x_0)\,</math> in example
Likewise the target will adopt if:
:<math>\pi(\hat{x}) \ge \pi(x_0) - h^*\,</math>, or <math>\frac{h^*}{\eta} \ge \hat{x}-x_0\,</math> in example
Putting these together (noting that <math>\hat{x} < x_D^*\,</math>) <math>\hat{x}\,</math> exists in example iff:
:<math>\frac{2-p}{1-p} \ge \frac{\beta}{\alpha}\,</math>
Therefore if harm is emphasized over reward then pro-active measures can be observed. Note that if the activist can not commit then there is a hold up problem that prevents pro-active measures: After the firm had implemented <math>\hat{x}\,</math> the activist would consider it the new <math>x_0\,</math> and begin the cycle again. This is where a reputation may be necessary to provide the commitment.
====With Multiple Targets====
If there are no strategic interactions between the firms then a firm has an incentive to adopt a pro-active measure to shift the activist's focus elsewhere. Thus there is a multiplier effect - the activist need only target one firm to make the entire industry shift pro-actively. However, without strategic interactions the shift is identical to that in single firm example above.
With strategic interactions, a competition in pro-active measures ensues. The result is equivalent to the activist conducting a second-price auction for the opportunity to avoid a campaign. A sufficient condition (but not necessary) for this is that harm is emphasized over rewards. The race to the top leads to greater aggregate change than targeting a single firm. This is the case regardless of commitment.
===Target Reputation===
Suppose that targets can be either Hard or Soft, such that with probability <math>0 < p_H < p_S < 1p_j\,</math>of being responsive, and can send a message message where <math>m_H\,0 < p_H </math> or p_S <math>m_S1\,</math> to the activist . The prior probability that has a prior target is H is <math>\rho_0p_0\,</math> that the target is Hard. Hard types never concede.
The prior ex ante probability that a target will concede is:
:<math>p_0 = \rho_0 p_H + (1-\rho_0)p_S\,</math>
The target can send a message <math>m_H\,</math> or <math>m_S\,</math> to the activist.
Let <math>\sigma_H(j)\,</math> be the probability that type <math>j\,</math> sends a hard message, and assume that:
:<math>\sigma_H(H) = 1\,</math>
:<math>\sigma_H(HS) < 1\,</math>
The posterior probability that the target is Hard given a signal <math>m_H\,</math> is:
:<math>\rho(m_H) = \frac{\rho_0}{\rho_0 + (1-\rho_0)\sigma_H(S)'}\,</math>
This gives us the activists activist's belief that a target will concede given message : :<math>m_Hp(m_S) = p_S\,</math>:
:<math>p(m_H) = \rho(m_H)p_H + (1-\rho(m_H))p_S \in [p_H, p_S]\,</math>
This results in the activist pursuing a campaign that:
*Is more aggressive when <math>m_S\,</math> is recievedreceived*Is less aggressive when <math>m_H\,</math> is recievedreceived*But This leads to a signalling strategy by the Soft firms such that sending the Hard type message to avoid the more aggressive campaign is increasing in <math>\gamma\,</math>m_Hand <math>p_S\,</math>, and decreasing in <math>\eta\,</math> and <math>\beta\,</math> campaign is still more aggresive than it would have been.
===Contesting the Campaign===
Suppose that the firm can fight back with intensity <math>f \ge 0\,</math>, where <math>k(f)\,</math> is the cost of fighting (increasing and convex), and that <math>\theta \in (0,\infty)\,</math> is the public's support for the firmcampaign. Then the probability of success is defined as:
:<math>q = \frac{\theta h}{\theta h + f}\,</math>
====Extenstion Extension to this Sub-Model====
==Summary==
#An activist has an incentive through repetition to follow through on its campaign promises of reward and harm and for not exploiting targets that accept its demands.
#A potential target can forestall a campaign through self-regulation by changing its practices proactively but only if the activist can commit not to subsequently launch a campaign or if the proactive change shifts the activist to an alternative target. Self-regulation is plagued by a hold-up problem.
#With multiple potential targets the activist can generate a race to the top in proactive measures. This creates an incentive for an industry to act collectively. #A potential target may develop a reputation for toughness to forestall a campaign, and the incentive to do so is strengthened by a moral hazard problem associated with revelation of its type. Conversely, a potential target that reveals itself as responsive or soft will be a more attractive target and campaigns will be more aggressive in their demands and threats. Potential targets thus have an incentive to signal that they are tough using both public and private politics strategies.
#In an infinitely-repeated game the activist can implement the optimal single-period campaign and has no incentive to shirk on the delivery of rewards and harm if its horizon is sufficiently long. For any given discount factor, however, the activist has an incentive to shirk on the delivery of harm in the optimal single period campaign if the probability of responsiveness is sufficiently high. Consequently, firms that are highly likely to be targets will not incur the single-period optimal campaign.
#If a campaign can be contested and the activist cannot commit to exploit a successful campaign, the target fights on the equilibrium path of play. If the activist can commit not to exploit a successful campaign,a responsive target concedes immediately and a recalcitrant target fights. When the cost of fighting is linear, the campaign is less aggressive when the activist can commit not to exploit a successful campaign.
