An investigation of financing an inspection policy while allowing the enforcement of a market regulation is described. A simple model shows that the intensity of controls depends on the market structure. Under a given number of firms, the per-firm probability of controls is lower than one, since firms’ incentive to comply with regulation holds under positive profits. In this case, a lump-sum tax is used for limiting distortions coming from financing with a fixed fee. Under free entry, the per-firm probability of controls is equal to one, and only a fixed fee that prevents excess entry is used to finance inspection.
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Publisher Info
Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number
12451.
Length: Date of creation: 26 Oct 2005 Date of revision: Handle: RePEc:isu:genres:12451
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