IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/51369.html
   My bibliography  Save this paper

Discretionary enforcement and strategic interactions between firms, regulatory agency and justice department: a theoretical and empirical investigation

Author

Listed:
  • Germani, Anna Rita
  • Morone, Andrea
  • Morone, Piergiuseppe
  • Scaramozzino, Pasquale

Abstract

This paper presents a game theoretic morphological analysis of the U.S. environmental authorities’ (i.e., EPA and DOJ) behavioural mechanisms, based on strategic interactions among the players. The models explore the role of discretion that such authorities enjoy, either in deciding how to pursue environmental violations (investigative and prosecutorial discretion) or in judging them (judicial discretion). The purpose is to identify both the optimal firms’ behaviour in terms of compliance, and the DOJ’s and EPA’s optimal strategies in terms of enforcement actions to undertake. Consistent with the setting of the game theory models, the role of EPA and DOJ in deterring firms from polluting is, then, empirically tested, by means of a laboratory experiment. Laboratory evidence on compliance behaviour of firms when faced with enforcement conditions predicted by the theoretical models set up is discussed for the different experimental treatments performed.

Suggested Citation

  • Germani, Anna Rita & Morone, Andrea & Morone, Piergiuseppe & Scaramozzino, Pasquale, 2013. "Discretionary enforcement and strategic interactions between firms, regulatory agency and justice department: a theoretical and empirical investigation," MPRA Paper 51369, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:51369
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/51369/1/MPRA_paper_51369.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Garoupa, Nuno, 2001. "Optimal magnitude and probability of fines," European Economic Review, Elsevier, vol. 45(9), pages 1765-1771, October.
    2. Gary S. Becker, 1974. "Crime and Punishment: An Economic Approach," NBER Chapters, in: Essays in the Economics of Crime and Punishment, pages 1-54, National Bureau of Economic Research, Inc.
    3. Shimshack, Jay P. & Ward, Michael B., 2005. "Regulator reputation, enforcement, and environmental compliance," Journal of Environmental Economics and Management, Elsevier, vol. 50(3), pages 519-540, November.
    4. Steven Shavell, 2003. "Economic Analysis of the General Structure of the Law," NBER Working Papers 9699, National Bureau of Economic Research, Inc.
    5. Stafford, Sarah L, 2003. "Assessing the Effectiveness of State Regulation and Enforcement of Hazardous Waste," Journal of Regulatory Economics, Springer, vol. 23(1), pages 27-41, January.
    6. Eric Rasmusen & Manu Raghav & Mark Ramseyer, 2009. "Convictions versus Conviction Rates: The Prosecutor's Choice," American Law and Economics Review, American Law and Economics Association, vol. 11(1), pages 47-78.
    7. Rousseau Sandra, 2007. "The Impact of Sanctions and Inspections on Firms’ Environmental Compliance Decisions," Energy, Transport and Environment Working Papers Series ete0704, KU Leuven, Department of Economics - Research Group Energy, Transport and Environment.
    8. Polinsky, A. Mitchell & Shavell, Steven, 1984. "The optimal use of fines and imprisonment," Journal of Public Economics, Elsevier, vol. 24(1), pages 89-99, June.
    9. Franckx, Laurent, 2002. "The Use of Ambient Inspections in Environmental Monitoring and Enforcement When the Inspection Agency Cannot Commit Itself to Announced Inspection Probabilities," Journal of Environmental Economics and Management, Elsevier, vol. 43(1), pages 71-92, January.
    10. Laplante, Benoit & Rilstone, Paul, 1996. "Environmental Inspections and Emissions of the Pulp and Paper Industry in Quebec," Journal of Environmental Economics and Management, Elsevier, vol. 31(1), pages 19-36, July.
    11. Anderson, Lisa R & Stafford, Sarah L, 2003. "Punishment in a Regulatory Setting: Experimental Evidence from the VCM," Journal of Regulatory Economics, Springer, vol. 24(1), pages 91-110, July.
    12. Friesen, Lana, 2003. "Targeting enforcement to improve compliance with environmental regulations," Journal of Environmental Economics and Management, Elsevier, vol. 46(1), pages 72-85, July.
    13. Magat, Wesley A & Viscusi, W Kip, 1990. "Effectiveness of the EPA's Regulatory Enforcement: The Case of Industrial Effluent Standards," Journal of Law and Economics, University of Chicago Press, vol. 33(2), pages 331-360, October.
    14. Tom Baker & Alon Harel & Tamar Kugler, 2003. "The Virtues of Uncertainty in Law: An Experimental Approach," Discussion Paper Series dp310, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem.
    15. Scholz, John T., 1991. "Cooperative Regulatory Enforcement and the Politics of Administrative Effectiveness," American Political Science Review, Cambridge University Press, vol. 85(1), pages 115-136, March.
    16. Eric Helland, 1998. "The Enforcement Of Pollution Control Laws: Inspections, Violations, And Self-Reporting," The Review of Economics and Statistics, MIT Press, vol. 80(1), pages 141-153, February.
    17. Harrington, Winston, 1988. "Enforcement leverage when penalties are restricted," Journal of Public Economics, Elsevier, vol. 37(1), pages 29-53, October.
    18. Tsebelis, George, 1989. "The Abuse of Probability in Political Analysis: The Robinson Crusoe Fallacy," American Political Science Review, Cambridge University Press, vol. 83(1), pages 77-91, March.
    19. Steven Shavell & A. Mitchell Polinsky, 2000. "The Economic Theory of Public Enforcement of Law," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 45-76, March.
    20. Heyes, Anthony & Rickman, Neil, 1999. "Regulatory dealing - revisiting the Harrington paradox," Journal of Public Economics, Elsevier, vol. 72(3), pages 361-378, June.
    21. Laurent Franckx, 2001. "Ambient environmental monitoring, sequential firm inspections and time-decreasing benefits of inspection," Economics Bulletin, AccessEcon, vol. 17(1), pages 1-10.
    22. Niskanen, William A, 1975. "Bureaucrats and Politicians," Journal of Law and Economics, University of Chicago Press, vol. 18(3), pages 617-643, December.
    23. Nuno Garoupa, 1997. "The Theory of Optimal Law Enforcement," Journal of Economic Surveys, Wiley Blackwell, vol. 11(3), pages 267-295, September.
    24. repec:bla:jecsur:v:11:y:1997:i:3:p:267-95 is not listed on IDEAS
    25. Shavell, Steven, 1993. "The Optimal Structure of Law Enforcement," Journal of Law and Economics, University of Chicago Press, vol. 36(1), pages 255-287, April.
    26. Dasgupta, Susmita & Hettige, Hemamala & Wheeler, David, 2000. "What Improves Environmental Compliance? Evidence from Mexican Industry," Journal of Environmental Economics and Management, Elsevier, vol. 39(1), pages 39-66, January.
    27. Stafford, Sarah L., 2002. "The Effect of Punishment on Firm Compliance with Hazardous Waste Regulations," Journal of Environmental Economics and Management, Elsevier, vol. 44(2), pages 290-308, September.
    28. Cass R. Sunstein & Daniel Kahneman & David Schkade & Ilana Ritov, 2001. "Predictably Incoherent Judgements," Discussion Paper Series dp273, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem.
    29. Subrahmanyam, Avanidhar, 1995. "On rules versus discretion in procedures to halt trade," Journal of Economics and Business, Elsevier, vol. 47(1), pages 1-16, February.
    30. Lando, Henrik & Shavell, Steven, 2004. "The advantage of focusing law enforcement effort," International Review of Law and Economics, Elsevier, vol. 24(2), pages 209-218, June.
    31. Dion, Catherine & Lanoie, Paul & Laplante, Benoit, 1998. "Monitoring of Pollution Regulation: Do Local Conditions Matter?," Journal of Regulatory Economics, Springer, vol. 13(1), pages 5-18, January.
    32. Thomas BLONDIAU & Sandra ROUSSEAU, 2009. "The impact of judicial objective function on the enforcement of environmental standards," Working Papers of Department of Economics, Leuven ces09.21, KU Leuven, Faculty of Economics and Business (FEB), Department of Economics, Leuven.
    33. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-491, June.
    34. Jones, Carol Adaire & Scotchmer, Suzanne, 1990. "The social cost of uniform regulatory standards in a hierarchical government," Journal of Environmental Economics and Management, Elsevier, vol. 19(1), pages 61-72, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Anna Rita Germani & Pasquale Scaramozzino & Andrea Morone & Piergiuseppe Morone, 2017. "Discretionary enforcement and strategic interactions between enforcement agencies and firms: a theoretical and laboratory investigation," Journal of Regulatory Economics, Springer, vol. 52(3), pages 255-284, December.
    2. Alm, James & Shimshack, Jay, 2014. "Environmental Enforcement and Compliance: Lessons from Pollution, Safety, and Tax Settings," Foundations and Trends(R) in Microeconomics, now publishers, vol. 10(4), pages 209-274, December.
    3. Jay P. Shimshack, 2014. "The Economics of Environmental Monitoring and Enforcement," Annual Review of Resource Economics, Annual Reviews, vol. 6(1), pages 339-360, October.
    4. Rousseau, Sandra, 2009. "Empirical Analysis of Sanctions for Environmental Offenses," International Review of Environmental and Resource Economics, now publishers, vol. 3(3), pages 161-194, December.
    5. Stafford Sarah L, 2006. "Rational or Confused Polluters? Evidence from Hazardous Waste Compliance," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 5(1), pages 1-33, July.
    6. Takayoshi Shinkuma & Shunsuke Managi, 2012. "Effectiveness of policy against illegal disposal of waste," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 14(2), pages 123-145, April.
    7. Keisaku Higashida, 2019. "Burden of Inspection Costs and Effectiveness of Environmental Regulations," Discussion Paper Series 189, School of Economics, Kwansei Gakuin University.
    8. Júlia Gallego Ziero Uhr & André Luis Squarize Chagas, Daniel de Abreu Pereira Uhr, Renan Porn Peres, 2017. "A study on environmental infractions for Brazilian municipalities: a spatial dynamic panel approach," Working Papers, Department of Economics 2017_13, University of São Paulo (FEA-USP).
    9. Tihitina Andarge & Erik Lichtenberg, 2020. "Regulatory compliance under enforcement gaps," Journal of Regulatory Economics, Springer, vol. 57(3), pages 181-202, June.
    10. Anna Rita Germani, 2007. "The Environmental Enforcement in the Civil and the Common Law Systems. A Case on the Economic Effects of Legal Institutions," Quaderni DSEMS 22-2007, Dipartimento di Scienze Economiche, Matematiche e Statistiche, Universita' di Foggia.
    11. Thomas J. Miceli & Kathleen Segerson & Dietrich Earnhart, 2022. "The role of experience in deterring crime: A theory of specific versus general deterrence," Economic Inquiry, Western Economic Association International, vol. 60(4), pages 1833-1853, October.
    12. Zach Raff & Dietrich Earnhart, 2018. "Effect Of Cooperative Enforcement Strategies On Wastewater Management," Economic Inquiry, Western Economic Association International, vol. 56(2), pages 1357-1379, April.
    13. Andarge, Tihitina & Lichtenberg, Erik, 2018. "Regulated Firm Strategy under Uncertainty about Regulatory Status," 2018 Annual Meeting, August 5-7, Washington, D.C. 274420, Agricultural and Applied Economics Association.
    14. Earnhart, Dietrich & Friesen, Lana, 2021. "Use of competitive endogenous audit mechanisms by federal and state inspectors within environmental protection agencies," Journal of Environmental Economics and Management, Elsevier, vol. 109(C).
    15. Suurmond, Guido, 2007. "The effects of the enforcement strategy," MPRA Paper 21142, University Library of Munich, Germany.
    16. André, Francisco J. & Sokri, Abderrahmane & Zaccour, Georges, 2011. "Public Disclosure Programs vs. traditional approaches for environmental regulation: Green goodwill and the policies of the firm," European Journal of Operational Research, Elsevier, vol. 212(1), pages 199-212, July.
    17. Shimshack, Jay P. & Ward, Michael B., 2022. "Costly sanctions and the treatment of frequent violators in regulatory settings," Journal of Environmental Economics and Management, Elsevier, vol. 116(C).
    18. Wayne B. Gray & Jay P. Shimshack, 2011. "The Effectiveness of Environmental Monitoring and Enforcement: A Review of the Empirical Evidence," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 5(1), pages 3-24, Winter.
    19. Zach Raff & Dietrich Earnhart, 2020. "The effect of environmental enforcement on labor: environmental workers and production workers," Journal of Regulatory Economics, Springer, vol. 57(2), pages 118-133, April.
    20. Dietrich Earnhart & Lana Friesen, 2021. "Enforcement Federalism: Comparing the Effectiveness of Federal Punishment versus State Punishment," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 78(2), pages 227-255, February.

    More about this item

    Keywords

    environmental enforcement; discretion; game theory; experimental economics.;
    All these keywords.

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • K0 - Law and Economics - - General
    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:51369. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.