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    An Anatomy of a Cartel: The National Industrial Recovery Act of 1933 and the Compliance Crisis of 1934

    Taylor, Jason E.
    Klein, Peter G.
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    [PDF] AnatomyCartelNationalIndustrialRecoveryAct.pdf (661.2Kb)
    Date
    2008
    Format
    Article
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    Abstract
    This paper explores the nature and causes of the cartel compliance crisis that befell the National Industrial Recovery Act (NIRA) one year after its passage in 1933. We employ a simple game-theoretic model of the NIRA's cartel enforcement mechanism to show that the compliance crisis can largely be explained by changes in expectations, rather than a change in enforcement policy. Specifically, firms initially overestimated the probability that defection would be met with sanction by the cartel's enabling body, the National Recovery Administration-including a consumer boycott resulting from loss of the patriotic Blue Eagle emblem-and complied with the industry cartel rules. As these expectations were correctly adjusted downward, cartel compliance was lost. We support this hypothesis empirically with industry-level panel data showing how output and wage rates varied according to consumer confidence in the Blue Eagle. The analysis provides insight about cartel performance more generally.
    URI
    http://hdl.handle.net/10355/8862
    Citation
    Research in Economic History, 26, 235-271, 2008.
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    • Agricultural Economics publications (MU)

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