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Agency Problems in Law Enforcement: Theory and Application to the U.S. Coast Guard

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Author Info

  • Kishore Gawande

    ()
    (George Bush School of Government and Public Service, Texas A&M University, College Station, Texas 77843-4220)

  • Alok K. Bohara

    ()
    (Department of Economics, MSC05 3060, University of New Mexico, Albuquerque, New Mexico 87131)

Abstract

We study two issues in the enforcement of public law. The first is whether the system of inspections and penalties set by the regulator is effective. The second is whether a better system of inspections and penalties can be designed, given the institutional constraints under which the regulator must function. We study these issues in the context of oil spill prevention activities of the U.S. Coast Guard (USCG), the agency entrusted with the enforcement of maritime pollution laws. A theoretically optimal contract that mixes penalties based on the amount of pollution ex post with penalties based on the extent of noncompliance ex ante is derived. The effectiveness of USCG inspections and penalties in reducing oil spills is then econometrically studied using microlevel data on a panel of U.S. flag tank vessels. Whether the optimal penalty can potentially improve the effectiveness of compliance inspections in reducing oil spills is examined in the light of the empirical results and recent developments in the economics and public management literature on effective incentive contracting. Among our findings is the potential for combining unilateral incentive-based methods with cooperative methods based on reciprocity to solve the complex problem of law enforcement.

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Bibliographic Info

Article provided by INFORMS in its journal Management Science.

Volume (Year): 51 (2005)
Issue (Month): 11 (November)
Pages: 1593-1609

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Handle: RePEc:inm:ormnsc:v:51:y:2005:i:11:p:1593-1609

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Keywords: violations; optimal penalty; micropanel data; oil spills; public policy;

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References

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  1. Montserrat Grau & Theodore Groves, 1997. "The Oil Spill Process: The Effect of Coast Guard Monitoring on Oil Spills," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 10(4), pages 315-339, December.
  2. George J. Stigler, 1974. "The Optimum Enforcement of Laws," NBER Chapters, in: Essays in the Economics of Crime and Punishment, pages 55-67 National Bureau of Economic Research, Inc.
  3. Douglas Staiger & James H. Stock, 1994. "Instrumental Variables Regression with Weak Instruments," NBER Technical Working Papers 0151, National Bureau of Economic Research, Inc.
  4. Ross, Stephen A, 1973. "The Economic Theory of Agency: The Principal's Problem," American Economic Review, American Economic Association, vol. 63(2), pages 134-39, May.
  5. Steven Shavell, 1979. "Risk Sharing and Incentives in the Principal and Agent Relationship," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 55-73, Spring.
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Cited by:
  1. Motta, Alberto & Burlando, Alfredo, 2007. "Self reporting reduces corruption in law enforcement," MPRA Paper 5332, University Library of Munich, Germany, revised 23 Jun 2007.
  2. Juergen Jung & Michael D. Makowsky, 2012. "Regulatory Enforcement, Politics, and Institutional Distance: OSHA Inspections 1990-2010," Working Papers 2012-02, Towson University, Department of Economics, revised Apr 2013.

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