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

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  • Kishore Gawande

    (George Bush School of Government and Public Service, Texas A&M University, College Station, Texas 77843-4220)

  • Alok K. Bohara

    (Department of Economics, MSC05 3060, University of New Mexico, Albuquerque, New Mexico 87131)

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 noncompliance ex ante is derived. The effectiveness of USCG inspections and penalties in reducing oil spills is then econometrically studied using microlevel data on a panel of U.S. 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 to solve the complex problem of law enforcement.

Suggested Citation

  • Kishore Gawande & Alok K. Bohara, 2005. "Agency Problems in Law Enforcement: Theory and Application to the U.S. Coast Guard," Management Science, INFORMS, vol. 51(11), pages 1593-1609, November.
    • Handle: RePEc:inm:ormnsc:v:51:y:2005:i:11:p:1593-1609
    DOI: 10.1287/mnsc.1050.0422
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    Cited by:

    1. Vollaard, Ben, 2017. "Temporal displacement of environmental crime: Evidence from marine oil pollution," Journal of Environmental Economics and Management, Elsevier, vol. 82(C), pages 168-180.
    2. Michael W. Toffel & Jodi L. Short, 2011. "Coming Clean and Cleaning Up: Does Voluntary Self-Reporting Indicate Effective Self-Policing?," Journal of Law and Economics, University of Chicago Press, vol. 54(3), pages 609-649.
    3. Liang Xu & Vidya Mani & Hui Zhao, 2023. "“Not a box of nuts and bolts”: Distribution channels for specialty drugs," Production and Operations Management, Production and Operations Management Society, vol. 32(7), pages 2283-2303, July.
    4. Fan, Lixian & Luo, Meifeng & Yin, Jinbo, 2014. "Flag choice and Port State Control inspections—Empirical evidence using a simultaneous model," Transport Policy, Elsevier, vol. 35(C), pages 350-357.
    5. Ralf Elbert & Holger Pontow & Alexander Benlian, 2017. "The role of inter-organizational information systems in maritime transport chains," Electronic Markets, Springer;IIM University of St. Gallen, vol. 27(2), pages 157-173, May.
    6. Motta, Alberto & Burlando, Alfredo, 2007. "Self reporting reduces corruption in law enforcement," MPRA Paper 5332, University Library of Munich, Germany, revised 23 Jun 2007.
    7. Maria R. Ibanez & Michael W. Toffel, 2020. "How Scheduling Can Bias Quality Assessment: Evidence from Food-Safety Inspections," Management Science, INFORMS, vol. 66(6), pages 2396-2416, June.
    8. 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.
    9. Juergen Jung & Michael Makowsky, 2014. "The determinants of federal and state enforcement of workplace safety regulations: OSHA inspections 1990–2010," Journal of Regulatory Economics, Springer, vol. 45(1), pages 1-33, February.

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