Learning about compliance under asymmetric information
AbstractOver time, inspection agencies gather information about firms that cause harmful externalities. This information may allow agencies to differentiate their monitoring strategies in the future, since inspections can be influenced by firms’ past performance relative to other competitors in the market. If a firm is less successful than its peers in reducing the externality, it faces the risk of being targeted for increased inspections in the next period. This risk of stricter monitoring might induce high cost firms to mimic low cost firms, while the latter might try to avoid being mimicked. We show that under certain circumstances, mimicking, or even the threat of mimicking, might reduce socially harmful activities and thus be welfare improving.
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Bibliographic InfoPaper provided by Universidad Autónoma de Madrid (Spain), Department of Economic Analysis (Economic Theory and Economic History) in its series Working Papers in Economic Theory with number 2008/02.
Length: 36 pages
Date of creation: Feb 2008
Date of revision:
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Postal: Francisco Tomás y Valiente, 5, 28049 Madrid
Web page: http://www.uam.es/departamentos/economicas/analecon/default.html
More information through EDIRC
Monitoring and enforcement; externalities; learning; mimicking;
Other versions of this item:
- Carmen Arguedas & Sandra Rousseau, 2008. "Learning about compliance under asymmetric information," Center for Economic Studies - Discussion papers ces0808, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- H83 - Public Economics - - Miscellaneous Issues - - - Public Administration
- K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-03-25 (All new papers)
- NEP-LAW-2008-03-25 (Law & Economics)
- NEP-MIC-2008-03-25 (Microeconomics)
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