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Collective penalities and inducement of self-reporting

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Author Info
Katrin Millock () (Centre d'Economie de la Sorbonne)
David Zilberman () (Department of Agricultural and Resource Economics, University of California, Berkeley)

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Abstract

Random accidents can be contained by collective penalties. These penalties are not likely to be enforced but rather induce self-reporting that enhances welfare due to early containment. Self-reporting under collective penalties increases overall welfare, but may increase expected environmental cost. Even when regulation is constrained by an upper limit on the acceptable collective penalty, the threat of collective penalties can induce an incentive-compatible mutual insurance scheme under which a side-payment is made to the agent that self-reports an accident. This self-reporting mechanism is welfare-improving, but first-best outcomes can only be obtained when the collective penalty is unconstrained, or when an honor system applies. In cases when there is a new externality that requires fast response (avian flu),collective penalties can compliment or substitute for monitoring.

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Publisher Info
Paper provided by Université Panthéon-Sorbonne (Paris 1) in its series Cahiers de la Maison des Sciences Economiques with number v06048a.

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Length: 40 pages
Date of creation: May 2006
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Handle: RePEc:mse:wpsorb:v06048a

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Related research
Keywords: Ambient tax; collective penalties; enforcement; self-reporting.;

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Find related papers by JEL classification:
H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

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    Other versions:
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