so the activist and the firms cannot communicate their information direct ly to the public The public relies on the soft report by the news media. The activist and the firms thus communicate to the public through the news media. The news media is assumed to be able to evaluate the information provided by the activist and the firms, so the sources cannot fake information The rest of the model is int roduced in the following sect ions beginning at the end of the game. Because of the complexity of the st rat egic situation the model is formulat ed in a relatively simple form V. The public A The public as cit izen Consumers Each member of the public makes a privat e decision whet her to purchase the product e.g., a low fuel economy vehicle, and collect ively the public chooses whether to regulate th product, e. g, impose a fuel economy standard. Citizens differ only in their valuat ion v for the product, and the public is assumed to consist of n cit izens with valuations dist ributed uniformly on the interval 0, v. That is, the distribution is Nf (v) where f(v)=3,VE[0, v Purchasing a low fuel economy vehicle generat es one unit of emissions, wl is assumed to be a pure public bad that costs each cit izen ffi Regulation in the form of a st andard s E(0, 1) can be imposed to reduce the emissions proportionately to(1-s)ffi Regulation also affect s the value of the product. The valuat ion wit h regulation is assumed to be given by v(1-as), where a E0, is a parameter. The aut omakers argue that a>1, reflecting downsizing, reductions in power, and reduced safety An indicat ion that a> 1 was given in congressional test imony by Edward B. Cohen, vice president of Honda North America. He st at ed, "If the current car feet were st ill at 1981 performance, weight and transmission levels, the passenger car CAFE would be almost 36 mpg inst ead of the current level of 28. 1 mpg. The trend is particularly pr since 1987. Based on EPAs data, technology has gone into the fleet from 1987 to 2000 at a rate that could have increased fuel economy by about 1. 5% per year, if it had not r The specifications(1-s)ffifor the emissions and (1-as)v for the valuation are to be nt Honda is the only aut omobile company operating in the Unit ed States that is not a nderst ood as local rat her than global properties of regulation member of the Alliance of Aut omobile Manufact urers and the only one not opposing a subst antial increase in fuel economy st andards. Honda has the highest fleet fuel economyso the activist and the firms cannot communicate their information directly to the public. The public relies on the soft report by the news media. The activist and the firms thus communicate to the public through the news media. The news media is assumed to be able to evaluate the information provided by the activist and the firms, so the sources cannot fake information. The rest of the model is introduced in the following sections beginning at the end of the game. Because of the complexity of the strategic situation the model is formulated in a relatively simple form. V. The Public A. The Public as Citizen Consumers Each member of the public makes a private decision whether to purchase the product, e.g., a low fuel economy vehicle, and collectively the public chooses whether to regulate the product, e.g., impose a fuel economy standard. Citizens differ only in their valuation v for the product, and the public is assumed to consist of N citizens with valuations distributed uniformly on the interval [0, vˆ]. That is, the distribution is Nf(v) where f(v) = 1 vˆ , v ∈ [0, vˆ]. Purchasing a low fuel economy vehicle generates one unit of emissions, which is assumed to be a pure public bad that costs each citizen θ. Regulation in the form of a standard s ∈ (0, 1) can be imposed to reduce the emissions proportionately to (1 − s)θ. Regulation also affects the value of the product. The valuation with regulation is assumed to be given by v(1 − αs), where α ∈ [0, 1 s ) is a parameter.7 The automakers argue that α>1, reflecting downsizing, reductions in power, and reduced safety. An indication that α>1 was given in congressional testimony by Edward B. Cohen, vice president of Honda North America.8 He stated, “If the current car fleet were still at 1981 performance, weight and transmission levels, the passenger car CAFE would be almost 36 mpg instead of the current level of 28.1 mpg. The trend is particularly pronounced since 1987. Based on EPA’s data, technology has gone into the fleet from 1987 to 2000 at a rate that could have increased fuel economy by about 1.5% per year, if it had not 7 The specifications (1 − s)θ for the emissions and (1 − αs)v for the valuation are to be understood as local rather than global properties of regulation. 8 Honda is the only automobile company operating in the United States that is not a member of the Alliance of Automobile Manufacturers and the only one not opposing a substantial increase in fuel economy standards. Honda has the highest fleet fuel economy. 11