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Agency Problems in Law Enforcement: Theory and Application to the U.S. Coast Guard

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  • kishore gawande

    (texas A&M)

  • alok k. bohara

    (u. new mexico)

Abstract

We study two issues in the enforcement of public law. The first is whether the system of inspections and penalties set by the regulator is effective. The second is whether a better system of inspections and penalties can be designed, given the institutional constraints under which the regulator must function. We study these issues in the context of oil spill prevention activities of the U.S. Coast Guard (USCG), the agency entrusted with the enforcement of maritime pollution laws. A theoretically optimal contract that mixes penalties based on the amount of pollution ex post with penalties based on the extent of non- compliance ex ante is derived. The effectiveness of USCG inspections and penalties in reducing oil spills is then econometrically studied using micro-level data on a panel of US flag tank vessels. Whether the optimal penalty can potentially improve the effectiveness of compliance inspections in reducing oil spills is examined in the light of the empirical results and recent developments in the economics and public management literature on effective incentive contracting. Among our findings is the potential for combining unilateral incentive-based methods with cooperative methods based on reciprocity in order to solve the complex problem of law enforcement.

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File URL: http://128.118.178.162/eps/le/papers/0505/0505001.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Law and Economics with number 0505001.

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Length: 36 pages
Date of creation: 03 May 2005
Date of revision:
Handle: RePEc:wpa:wuwple:0505001

Note: Type of Document - pdf; pages: 36
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Web page: http://128.118.178.162

Related research

Keywords: Violations; Optimal Penalty; Micro-Panel Data; Oil Spills; Public Policy.;

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References

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  1. George J. Stigler, 1974. "The Optimum Enforcement of Laws," NBER Chapters, in: Essays in the Economics of Crime and Punishment, pages 55-67 National Bureau of Economic Research, Inc.
  2. Montserrat Grau & Theodore Groves, 1997. "The Oil Spill Process: The Effect of Coast Guard Monitoring on Oil Spills," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 10(4), pages 315-339, December.
  3. Douglas Staiger & James H. Stock, 1994. "Instrumental Variables Regression with Weak Instruments," NBER Technical Working Papers 0151, National Bureau of Economic Research, Inc.
  4. Steven Shavell, 1979. "Risk Sharing and Incentives in the Principal and Agent Relationship," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 55-73, Spring.
  5. Ross, Stephen A, 1973. "The Economic Theory of Agency: The Principal's Problem," American Economic Review, American Economic Association, vol. 63(2), pages 134-39, May.
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Cited by:
  1. Alfredo Burlando & Alberto Motta, 2007. "Self Reporting reduces corruption in law enforcement," "Marco Fanno" Working Papers 0063, Dipartimento di Scienze Economiche "Marco Fanno".
  2. Juergen Jung & Michael D. Makowsky, 2012. "Regulatory Enforcement, Politics, and Institutional Distance: OSHA Inspections 1990-2010," Working Papers 2012-02, Towson University, Department of Economics, revised Apr 2013.

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