Enforcement Leverage with Fixed Inspection Capacity
We develop a targeting enforcement mechanism in the context of fixed inspection capacity due to budget constraint. A fixed number of firms are selected for inspection and those with the highest emissions are targeted with higher inspection probability. This structure induces dynamic rank-order tournaments among inspected firms. The differentiated inspection probabilities between targeted and untargeted firms induces leverage effects while the rank-order tournament induces competition effect. The combinations of leverage and competition effects give firms more incentive to abate and stay in compliance. We use numerical simulations to show that targeted firms should be inspected with high probability and that about 2/3 of inspections should be allocated to targeted firms. Furthermore, even suboptimal allocations of inspections and firms to the targeted and untargeted groups can out-perform static enforcement schemes.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Harford, Jon D. & Harrington, Winston, 1991. "A reconsideration of enforcement leverage when penalties are restricted," Journal of Public Economics, Elsevier, vol. 45(3), pages 391-395, August.
- Harford, Jon D., 1991. "Measurement error and state-dependent pollution control enforcement," Journal of Environmental Economics and Management, Elsevier, vol. 21(1), pages 67-81, July.
- Lars Hansen & Frank Jensen & Linda Nøstbakken, 2014.
"Quota Enforcement in Resource Industries: Self-Reporting and Differentiated Inspections,"
Environmental & Resource Economics,
European Association of Environmental and Resource Economists, vol. 58(4), pages 539-562, August.
- Lars Gårn Hansen & Frank Jensen & Linda Nøstbakken, 2010. "Quota Enforcement in Resource Industries: Self-Reporting and Differentiated Inspections," IFRO Working Paper 2010/10, University of Copenhagen, Department of Food and Resource Economics, revised May 2011.
- Harrington, Winston, 1988. "Enforcement leverage when penalties are restricted," Journal of Public Economics, Elsevier, vol. 37(1), pages 29-53, October.
- Raymond, Mark, 1999. "Enforcement leverage when penalties are restricted: a reconsideration under asymmetric information," Journal of Public Economics, Elsevier, vol. 73(2), pages 289-295, August.
- Carol Adaire Jones, 1989. "Standard setting with incomplete enforcement revisited," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 8(1), pages 72-87.
- Barry J. Nalebuff & Joseph E. Stiglitz, 1983. "Prices and Incentives: Towards a General Theory of Compensation and Competition," Bell Journal of Economics, The RAND Corporation, vol. 14(1), pages 21-43, Spring.
- Lazear, Edward P & Rosen, Sherwin, 1981.
"Rank-Order Tournaments as Optimum Labor Contracts,"
Journal of Political Economy,
University of Chicago Press, vol. 89(5), pages 841-64, October.
- Laurent Franckx & Isabelle Brose & Alessio DAmato, 2004. "Multitask Rank Order Tournaments," Economics Bulletin, AccessEcon, vol. 10(10), pages 1-10.
- Friesen, Lana, 2003.
"Targeting enforcement to improve compliance with environmental regulations,"
Journal of Environmental Economics and Management,
Elsevier, vol. 46(1), pages 72-85, July.
- Friesen, Lana, 2001. "Targeting Enforcement to Improve Compliance with Environmental Regulations," 2001 Conference (45th), January 23-25, 2001, Adelaide 125634, Australian Agricultural and Resource Economics Society.
- Alm, James & McKee, Michael, 2004. "Tax compliance as a coordination game," Journal of Economic Behavior & Organization, Elsevier, vol. 54(3), pages 297-312, July.
- Scott M. Gilpatric & Christian A. Vossler & Michael McKee, 2011. "Regulatory enforcement with competitive endogenous audit mechanisms," RAND Journal of Economics, RAND Corporation, vol. 42(2), pages 292-312, 06.
- Sarah L. Stafford, 2008. "Self-Policing in a Targeted Enforcement Regime," Southern Economic Journal, Southern Economic Association, vol. 74(4), pages 934-951, April.
When requesting a correction, please mention this item's handle: RePEc:now:jnlsbe:102.00000034. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Alet Heezemans)
If references are entirely missing, you can add them using this form.