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Lie aversion and self-reporting in optimal law enforcement

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  • Robert Innes

    (University of California)

Abstract

Requirements that individuals or companies self-report violations are common in regulation and law enforcement. This paper studies how violators’ aversion to lying affects the design and merit of enforcement regimes that require self-reporting. Even when a self-reporting requirement produces costs of lies and enjoys no economic advantage in the absence of lie aversion, I find that self-reporting improves enforcement efficiency. With lie aversion, self-reporting enables greater deterrence of violations at a lower cost of monitoring. Corollaries to this result are that (1) the presence of lie aversion enhances social welfare; (2) enforcement regimes that elicit more noxious lies when false reports are made—for example, a compulsory versus voluntary self-reporting feature—are advantageous; and (3) under an optimal enforcement regime, lying generally occurs and the self-reporting sanction is higher than the average sanction for a false report.

Suggested Citation

  • Robert Innes, 2017. "Lie aversion and self-reporting in optimal law enforcement," Journal of Regulatory Economics, Springer, vol. 52(2), pages 107-131, October.
  • Handle: RePEc:kap:regeco:v:52:y:2017:i:2:d:10.1007_s11149-017-9329-7
    DOI: 10.1007/s11149-017-9329-7
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    More about this item

    Keywords

    Self-reporting; Law enforcement; Lie aversion;
    All these keywords.

    JEL classification:

    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights

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