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Discretionary enforcement and strategic interactions between enforcement agencies and firms: a theoretical and laboratory investigation

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  • Anna Rita Germani

    (“Sapienza” University of Rome)

  • Pasquale Scaramozzino

    (School of Finance and Management, SOAS University of London
    University of Rome Tor Vergata)

  • Andrea Morone

    (Università degli Studi di Bari “Aldo Moro”)

  • Piergiuseppe Morone

    (Unitelma-Sapienza University of Rome)

Abstract

This paper presents a game theoretic morphological analysis of the strategic interactions between environmental enforcement authorities and polluting firms. 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 enforcement authorities’ optimal strategies in terms of enforcement actions to undertake. Consistent with the setting of the game theoretic models, the role of the enforcement agencies in deterring firms from polluting is, then, empirically tested by means of laboratory experiments. 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. Overall, we suggest that making environmental enforcement less predictable for the firms, and thus creating a degree of uncertainty for the violators, can actually encourage deterrence and, thus, improve compliance. Thus, a partly unpredictable enforcement strategy may generate more compliance than an environmental policy that is known with certainty in advance.

Suggested Citation

  • 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.
    • Handle: RePEc:kap:regeco:v:52:y:2017:i:3:d:10.1007_s11149-017-9341-y
    DOI: 10.1007/s11149-017-9341-y
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    3. Kejia Hu & Sunil Chopra & Yuche Chen, 2021. "The Effect of Tightening Standards on Automakers’ Non‐compliance," Production and Operations Management, Production and Operations Management Society, vol. 30(9), pages 3094-3115, September.

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