Flexible enforcement and fine adjustment

Authors

  • Christopher S. Decker

    Corresponding author
    1. Department of Economics and Real Estate, College of Business Administration, University of Nebraska at Omaha, NE, USA and Center for Great Plains Studies, University of Nebraska at Lincoln, NE, USA
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Christopher S. Decker, 508J, College of Business Administration, 60th and Dodge Street, Omaha, NE 68182, USA. Email: christopherdecker@mail.unomaha.edu

Abstract

This paper considers the level of, and changes in, optimal noncompliance penalties under the following conditions: (i) where the regulator responsible for setting policy parameters, such as a penalty, is different from (and thus may have a different objective from) the regulator responsible for enforcing existing regulations; and (ii) where enforcement behavior changes from one in which enforcers are unresponsive to overtures on the part of firms to increase compliance to one in which enforcers are responsive to such overtures. The model developed shows that when enforcers “switch” from unresponsive to responsive enforcement, the optimal penalties for noncompliance need to be reduced. The analysis also gives insights as to what variables dictate the degree of penalty reduction.

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