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Do Activist Campaigns Benefit Society?

Using the three-period model from Chapter 2, this chapter explores whether the presence of activists enhances or harms social welfare. Campaigns have both static and dynamic effects which have fairly different but complementary effects on social welfare. The canonical case in which an activist campaign increases welfare involves a firm that cares intensely about protecting itself against reputation loss, an activist that is not excessively passionate, and a campaign aimed at addressing a high-stakes negative externality. A sufficiently high marginal benefit from private regulation is necessary for an activist to be socially beneficial, while campaigns resulting in private regulation that is essentially redistributive necessarily reduce social welfare.