Norm Flexibility and Private Initiative

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Norm Flexibility and Private Initiative

Author Info

Giovanni Immordino () (Università di Salerno and CSEF)
Marco Pagano () (Università di Napoli Federico II, CSEF, CEPR and ECGI)
Michele Polo () (Università Bocconi di Milano, CSEF and CEPR)

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Abstract

We model an enforcement problem where firms can take a known and lawful action or seek a profitable innovation that may enhance or reduce welfare. The legislator sets fines calibrated to the harmfulness of unlawful actions. The range of fines defines norm flexibility. Expected sanctions guide firms’ choices among unlawful actions (marginal deterrence) and/or stunt their initiative altogether (average deterrence). With loyal enforcers, maximum norm flexibility is optimal, so as to exploit both marginal and average deterrence. With corrupt enforcers, instead, the legislator should prefer more rigid norms that prevent bribery and misreporting, at the cost of reducing marginal deterrence and stunting private initiative. The greater is potential corruption, the more rigid the optimal norms.

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Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Salerno, Italy in its series CSEF Working Papers with number 163.

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Date of creation: 01 Sep 2006
Date of revision: 01 Nov 2006
Handle: RePEc:sef:csefwp:163

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Paper
- Giovanni Immordino & Marco Pagano & Michele Polo, . "Norm Flexibility and Private Initiative," Working Papers 314, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]

Find related papers by JEL classification:
D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
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

This paper has been announced in the following NEP Reports:

NEP-ALL-2006-09-23 (All new papers)
NEP-LAW-2006-09-23 (Law & Economics)

References listed on IDEAS
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