A signaling motive for self-regulation in the shadow of coercion

There are many activities which, whilst not regulated now, may be subject to regulation in the future. Firms with high potential compliance costs can use voluntary self-regulatory behavior now to signal their type, and so secure lenient treatment should regulation arise in the future. The performance of self-regulators may deteriorate when regulation is imposed. The prediction that high cost firms will self-regulate has novel implications. More generally, it can be thought of as a model of voluntary private provision of a public good in a world in which private provision may later become mandatory.