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The role of warnings in regulation: keeping control with less punishment

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  • Nyborg, Karine
  • Telle, Kjetil

Abstract

Regulatory agencies frequently present violators with warnings, not pursuing prosecution if the violation ceases upon receipt of the warning. We show how such warnings may help regulators to keep control: Prosecution is costly for the regulator, and insu.cient prosecution e.orts yield low penalties. Thus, with a limited regulatory budget, threats of harsh sanctions are credible only if the number of violators is low. This produces multiple Nash equilibria. If firms may make mistakes, the economy can accidentally switch from one equilibrium to another. Warnings reduce substantially the probability of such accidental switches from the high to the low compliance equilibrium.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 88 (2004)
Issue (Month): 12 (December)
Pages: 2801-2816

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Handle: RePEc:eee:pubeco:v:88:y:2004:i:12:p:2801-2816

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Web page: http://www.elsevier.com/locate/inca/505578

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  1. Devon Garvie & Andrew Keeler, 1993. "Incomplete Enforcement with Endogenous Regulatory Choice," Working Papers 873, Queen's University, Department of Economics.
  2. Damme, E.E.C. van & Weibull, J., 1998. "Evolution with Mutations Driven by Control Costs," Discussion Paper 1998-94, Tilburg University, Center for Economic Research.
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  8. Harrington, Winston, 1988. "Enforcement leverage when penalties are restricted," Journal of Public Economics, Elsevier, vol. 37(1), pages 29-53, October.
  9. repec:fth:iniesr:501 is not listed on IDEAS
  10. Lindbeck, Assar & Nyberg, Sten & Weibull, Jörgen W., 1997. "Social Norms and Economic Incentives in the Welfare State," Working Paper Series 476, Research Institute of Industrial Economics.
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  12. Telle, Kjetil, 2013. "Monitoring and enforcement of environmental regulations," Journal of Public Economics, Elsevier, vol. 99(C), pages 24-34.
  13. Nyborg, Karine & Telle, Kjetil, 2004. "A dissolving paradox: Firms’ compliance to environmental regulation," Memorandum 02/2004, Oslo University, Department of Economics.
  14. Heyes, Anthony & Rickman, Neil, 1999. "Regulatory dealing - revisiting the Harrington paradox," Journal of Public Economics, Elsevier, vol. 72(3), pages 361-378, June.
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