IDEAS home Printed from https://ideas.repec.org/a/bla/scotjp/v67y2020i4p420-441.html
   My bibliography  Save this article

Optimal regulation under imperfect enforcement: Permits, tickets, or both?

Author

Listed:
  • Andrew Samuel
  • Amy Farmer
  • Fabio Mendez

Abstract

Economic activity is often regulated through both permits and tickets (subsequent inspections). We study the effectiveness of such policies where corruption and an underground economy make enforcement imperfect. In the theoretical model, asymmetric information justifies regulatory action which is enforced by corruptible bureaucrats. We find that regulation through permits alone is useless when corruption exists, while tickets still offer some benefit. Surprisingly, we also find that a system with both permits and tickets achieves welfare that is higher than that which can be achieved with only tickets—that combining the two mechanisms has an effect that is greater than the “sum of the parts.”

Suggested Citation

  • Andrew Samuel & Amy Farmer & Fabio Mendez, 2020. "Optimal regulation under imperfect enforcement: Permits, tickets, or both?," Scottish Journal of Political Economy, Scottish Economic Society, vol. 67(4), pages 420-441, September.
    • Handle: RePEc:bla:scotjp:v:67:y:2020:i:4:p:420-441
    DOI: 10.1111/sjpe.12242
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/sjpe.12242
    Download Restriction: no
    File URL: https://libkey.io/10.1111/sjpe.12242?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Polinsky, A. Mitchell & Shavell, Steven, 2001. "Corruption and optimal law enforcement," Journal of Public Economics, Elsevier, vol. 81(1), pages 1-24, July.
    2. Thierry Verdier & Daron Acemoglu, 2000. "The Choice between Market Failures and Corruption," American Economic Review, American Economic Association, vol. 90(1), pages 194-211, March.
    3. Samuel, Andrew, 2009. "Preemptive collusion among corruptible law enforcers," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 441-450, August.
    4. Cule, Monika & Fulton, Murray, 2005. "Some implications of the unofficial economy-bureaucratic corruption relationship in transition countries," Economics Letters, Elsevier, vol. 89(2), pages 207-211, November.
    5. Mookherjee, Dilip & Png, I P L, 1995. "Corruptible Law Enforcers: How Should They Be Compensated?," Economic Journal, Royal Economic Society, vol. 105(428), pages 145-159, January.
    6. Harstad, Bård & Svensson, Jakob, 2011. "Bribes, Lobbying, and Development," American Political Science Review, Cambridge University Press, vol. 105(1), pages 46-63, February.
    7. Kofman, Fred & Lawarree, Jacques, 1993. "Collusion in Hierarchical Agency," Econometrica, Econometric Society, vol. 61(3), pages 629-656, May.
    8. Kaplow, Louis & Shavell, Steven, 1994. "Optimal Law Enforcement with Self-Reporting of Behavior," Journal of Political Economy, University of Chicago Press, vol. 102(3), pages 583-606, June.
    9. Jay Pil Choi & Marcel Thum, 2005. "Corruption And The Shadow Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(3), pages 817-836, August.
    10. Diego Winkelried, 2005. "Income Distribution and the Size of the Informal Sector," Development and Comp Systems 0512005, University Library of Munich, Germany.
    11. Leland, Hayne E, 1979. "Quacks, Lemons, and Licensing: A Theory of Minimum Quality Standards," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1328-1346, December.
    12. Ahlin, Christian & Bose, Pinaki, 2007. "Bribery, inefficiency, and bureaucratic delay," Journal of Development Economics, Elsevier, vol. 84(1), pages 465-486, September.
    13. Fahad Khalil & Jacques Lawarrée & Sungho Yun, 2010. "Bribery versus extortion: allowing the lesser of two evils," RAND Journal of Economics, RAND Corporation, vol. 41(1), pages 179-198, March.
    14. Shavell, Steven, 1993. "The Optimal Structure of Law Enforcement," Journal of Law and Economics, University of Chicago Press, vol. 36(1), pages 255-287, April.
    15. Facundo Sepúlveda, 2010. "What Do We Talk About When We Talk About Corruption?," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 26(3), pages 493-514.
    16. Cuff, Katherine & Marceau, Nicolas & Mongrain, Steeve & Roberts, Joanne, 2011. "Optimal Policies with an Informal Sector," Journal of Public Economics, Elsevier, vol. 95(11), pages 1280-1291.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Alexander Henke & Fahad Khalil & Jacques Lawarree, 2022. "Honest agents in a corrupt equilibrium," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 31(3), pages 762-783, August.
    2. Andrew Samuel & Ajit Mishra, 2022. "Does it matter who extorts? Extortion by competent and incompetent enforcers," Scottish Journal of Political Economy, Scottish Economic Society, vol. 69(3), pages 328-344, July.
    3. Nicolas Jacquemet, 2005. "La corruption comme une imbrication de contrats : Une revue de la littérature microéconomique," Working Papers 2005-29, Center for Research in Economics and Statistics.
    4. Farmer Amy & Méndez Fabio & Samuel Andrew, 2018. "A Note on Licenses in the Presence of Corruption," Review of Law & Economics, De Gruyter, vol. 14(3), pages 1-14, November.
    5. Drugov, Mikhail, 2010. "Competition in bureaucracy and corruption," Journal of Development Economics, Elsevier, vol. 92(2), pages 107-114, July.
    6. Burlando, Alfredo & Motta, Alberto, 2016. "Legalize, tax, and deter: Optimal enforcement policies for corruptible officials," Journal of Development Economics, Elsevier, vol. 118(C), pages 207-215.
    7. Polinsky, A. Mitchell & Shavell, Steven, 2007. "The Theory of Public Enforcement of Law," Handbook of Law and Economics, in: A. Mitchell Polinsky & Steven Shavell (ed.), Handbook of Law and Economics, edition 1, volume 1, chapter 6, pages 403-454, Elsevier.
    8. Alessandro De Chiara & Luca Livio, 2012. "Truthful Reporting, Moral Hazard and Purely Soft Information," Working Papers ECARES ECARES 2012-029, ULB -- Universite Libre de Bruxelles.
    9. Fabio Méndez, 2014. "Can corruption foster regulatory compliance?," Public Choice, Springer, vol. 158(1), pages 189-207, January.
    10. Andrew Samuel & Jeremy Schwartz & Kerry Tan, 2021. "Licensing And The Informal Sector In Rental Housing Markets: Theory And Evidence," Contemporary Economic Policy, Western Economic Association International, vol. 39(2), pages 325-347, April.
    11. Ajit Mishra, 2004. "Corruption: A Review," Dundee Discussion Papers in Economics 170, Economic Studies, University of Dundee.
    12. Yun Sungho, 2012. "Costs of Engaging in Corruption: Equilibrium with Extortion and Framing," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-32, December.
    13. Charles Angelucci & Antonio Russo, 2022. "Petty Corruption And Citizen Reports," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 63(2), pages 831-848, May.
    14. Samuel, Andrew, 2009. "Preemptive collusion among corruptible law enforcers," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 441-450, August.
    15. Che, Xiaogang & Huang, Yangguang & Zhang, Le, 2021. "Supervisory efficiency and collusion in a multiple-agent hierarchy," Games and Economic Behavior, Elsevier, vol. 130(C), pages 425-442.
    16. Octavian Strimbu & Patrick Gonzalez, 2013. "Does Transparency Reduce Corruption ?," Cahiers de recherche CREATE 2013-5, CREATE.
    17. Bernard Gauthier & Jonathan Goyette, 2016. "Fiscal policy and corruption," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 46(1), pages 57-79, January.
    18. Steven Shavell & A. Mitchell Polinsky, 2000. "The Economic Theory of Public Enforcement of Law," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 45-76, March.
    19. Davide Infante & Janna Smirnova, 2010. "Market Failures within Poor Institutions: The Effects of Bureaucrats’ Rent-seeking Activity," Chapters, in: Neri Salvadori (ed.), Institutional and Social Dynamics of Growth and Distribution, chapter 5, Edward Elgar Publishing.
    20. Hiriart, Yolande & Martimort, David & Pouyet, Jerome, 2010. "The public management of risk: Separating ex ante and ex post monitors," Journal of Public Economics, Elsevier, vol. 94(11-12), pages 1008-1019, December.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:scotjp:v:67:y:2020:i:4:p:420-441. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/sesssea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.