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The purpose of this paper is to explore the impact that minimum quality standards have on product quality when entrepreneurial innovation is considered.

The author develops a game-theoretic model. It is a standard vertical product differentiation model, but incorporates a minimum quality standard and uncertain entrepreneurial innovation.

While the minimum quality standard increases the expected quality of the low-quality product, under reasonable circumstances the expected quality of the high-quality good decreases. Thus, average quality can decrease with regulation intended to increase product quality.

Past research on minimum quality standards does not consider its impact on entrepreneurial effort when their innovation investments lead to uncertain outcomes.

Minimum quality standard regulation can have counterproductive impacts if the impact on entrepreneurs is not considered. The regulation can disincentivize entrepreneurs leading to lower quality products.

Regulation can be welfare reducing.

This paper is the first to incorporate entrepreneurial innovation into a product quality model to explore the impact of minimum quality standard regulation.

We explore how economic freedom measurements can be used to guide policy.

We propose a method for creating a growth-enhancing economic freedom index, which allows for nonlinearities and interaction effects between the components to economic freedom. We use this method to illustrate that US states differ in which policy area generates the greatest gains.

To validate the method presented, we apply our index to state bond markets. Financial market participants have the incentive to properly evaluate states’ policies. If our measurement is useful, then it should correlate with bond ratings. Consistent with this hypothesis, we present evidence that state bond ratings are strongly correlated with our growth-enhancing economic freedom index.

It has been well-established that economic freedom is associated with good economic outcomes. Economic freedom is comprised of numerous dimensions. Thus, the marginal benefit of improving policy in one area can be expected to depend on the amount of freedom in the other dimensions. Which policy improvement is most impactful depends on the entire menu of current policies and, therefore, differs between states. Our new method can then be used as a guide to determining for a particular state which policies can be expected to impact economic well-being the most.

The purpose of this paper is to identify whether personality traits can help explain the outcomes that arise in bargaining outcomes.

Experiments with subjects playing the alternating-offers bargaining game are considered. Both full information and asymmetric information treatments are considered. Subjects also complete standardized Myers-Briggs Type Indicator assessments.

Personality type measurements are shown to help explain the opening offers, rejections, and resulting wealth in the negotiations. It is shown that interactions between the personality dimensions are important and that the interaction between personality and information play a key role in bargaining outcomes.

The research utilizes laboratory experiments to generate data. This expands our understanding of individual-level behavior, but suffers from the limitation of not replicating realistic bargaining situations.

The work should serve as a guide to organizations to identify traits of effective negotiators.

Bargaining is a central economic activity. Being able to identify the root of differences in outcomes from negotiations should be able to inform institutional design issues.

Little work has been done connecting the rich literature in social psychology and management on personality to economic outcomes. The research on bargaining neglects to incorporate individual-level traits into the process. This research begins to bridge this gap and informs both bargaining theory as well as emphasizes on the importance of personality in application.

Law enforcement agents enforce rules that they might transgress in their private lives. Building from a theory of “hypocrisy aversion” where agents incur psychological costs from imposing a sanction on others for rules that they might break, the authors design a two-player game in which players are simultaneously placed in the roles of enforcer and potential transgressor. In this model, discretionary enforcement is endogenous to the size of the sanction. Conditional on rewards to enforcement and punishment that are both sufficiently small in the status quo, the authors demonstrate that price effects can be dominated by second-order hypocrisy effects, leading to rates of transgression that increase with larger sanctions. The authors test the model within a laboratory experiment where individuals can simultaneously gamble at the expense of a third party and punish those they observe gambling. Examining the comparable testable predictions of models of (i) selfish agents, (ii) pro-social agents, and (iii) pro-social agents who are averse to hypocrisy, the authors find evidence of hypocrisy aversion in the rates of gambling, sanctioning, and the changing composition of agent strategies. Our results suggest that increasing sanctions can backfire in the deterrence of common criminal and non-criminal offenses.