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The Role of Warnings in Regulation: Keeping Control with Less Punishment

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Author Info
Nyborg, Karine () (Ragnar Frisch Centre for Economic Research)
Telle, Kjetil () (Division for Resource and Environmental Economics, Research Department, Statistics Norway)

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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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File URL: http://www.oekonomi.uio.no/memo/memopdf/memo2403.pdf
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Publisher Info
Paper provided by Oslo University, Department of Economics in its series Memorandum with number 24/2003.

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Length: 31 pages
Date of creation: 01 Dec 2003
Date of revision:
Publication status: Published in Journal of Public Economics, 2004, pages 2801-2816.
Handle: RePEc:hhs:osloec:2003_024

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Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Phone: 22 85 51 27
Fax: 22 85 50 35
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Web page: http://www.oekonomi.uio.no/indexe.html
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Related research
Keywords: Enforcement; warnings; multiple equilibria.;

Other versions of this item:

Find related papers by JEL classification:
D62 - Microeconomics - - Welfare Economics - - - Externalities
K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Garvie, Devon & Keeler, Andrew, 1994. "Incomplete enforcement with endogenous regulatory choice," Journal of Public Economics, Elsevier, vol. 55(1), pages 141-162, September. [Downloadable!] (restricted)
    Other versions:
  2. Livernois, John & McKenna, C.J., 1996. "Truth or Consequences? Enforcing Pollution Standards," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich.
    Other versions:
  3. Weibull, Jörgen W. & van Damme, Eric, 1998. "Evolution with Mutations Driven by Control Costs," Working Paper Series 501, Research Institute of Industrial Economics. [Downloadable!]
    Other versions:
  4. Heyes, Anthony & Rickman, Neil, 1999. "Regulatory dealing - revisiting the Harrington paradox," Journal of Public Economics, Elsevier, vol. 72(3), pages 361-378, June. [Downloadable!] (restricted)
  5. Harrington, Winston, 1988. "Enforcement leverage when penalties are restricted," Journal of Public Economics, Elsevier, vol. 37(1), pages 29-53, October. [Downloadable!] (restricted)
  6. A. Mitchell Polinsky & Steven Shavell, 2000. "The Economic Theory of Public Enforcement of Law," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 45-76, March. [Downloadable!] (restricted)
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  7. Jorgen W. Weibull, 1997. "Evolutionary Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262731215, January.
  8. Assar Lindbeck & Sten Nyberg & Jšrgen W. Weibull, 1999. "Social Norms And Economic Incentives In The Welfare State," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 1-35, February. [Downloadable!] (restricted)
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  9. Livernois, John & McKenna, C. J., 1999. "Truth or consequences: Enforcing pollution standards with self-reporting," Journal of Public Economics, Elsevier, vol. 71(3), pages 415-440, March. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Rousseau Sandra, 2005. "The use of warnings when intended and measured emissions differ," Energy, Transport and Environment Working Papers Series ete0508, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Energy, Transport and Environment. [Downloadable!]
  2. Nyborg, Karine & Telle, Kjetil, 2004. "A dissolving paradox: Firms’ compliance to environmental regulation," Memorandum 02/2004, Oslo University, Department of Economics. [Downloadable!]
  3. Kjetil Telle, 2004. "Effects of inspections on plants' regulatory and environmental performance - evidence from Norwegian manufacturing industries," Discussion Papers 381, Research Department of Statistics Norway. [Downloadable!]
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