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The warnings puzzle: an upstream explanation

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  • Timo Goeschl
  • Johannes Jarke

Abstract

Enforcement agencies issuing warnings are an empirical regularity in the enforcement of laws and regulations, but a challenge to the standard economic theory of public enforcement. A number of recent contributions explain the popularity of warnings as a response to information asymmetries between regulator and regulatee. We offer a distinct, but complementary explanation: Warnings can serve as a signaling device in the interaction between the enforcement agency and its budget-setting authority. By using costly warnings for minor offenses that would otherwise not be pursued, the agency can generate observable activity to escape budget cuts in subsequent periods. We show in a stylized model that warnings may indeed occur in an equilibrium of a game in which warnings are entirely unproductive in the agency-regulatee interaction, and thereby derive a testable hypothesis on regulatory agency behavior. Copyright Springer Science+Business Media New York 2013

Suggested Citation

  • Timo Goeschl & Johannes Jarke, 2013. "The warnings puzzle: an upstream explanation," Journal of Regulatory Economics, Springer, vol. 44(3), pages 339-360, December.
    • Handle: RePEc:kap:regeco:v:44:y:2013:i:3:p:339-360
    DOI: 10.1007/s11149-013-9223-x
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    1. Earnhart, Dietrich & Friesen, Lana, 2017. "The Effects of Regulated Facilities' Perceptions About the Effectiveness of Government Interventions on Environmental Compliance," Ecological Economics, Elsevier, vol. 142(C), pages 282-294.

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    More about this item

    Keywords

    Warnings; Enforcement; Information asymmetry; Signaling; H11; H83; K42;
    All these keywords.

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H83 - Public Economics - - Miscellaneous Issues - - - Public Administration
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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