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Regulatory Capacity in a Game of Asymmetric Regulation

Author

Listed:
  • Jacopo Gambato

  • Bernhard Ganglmair

  • Julia Krämer

Abstract

In a model of asymmetric regulation, a firm can comply with two regulatory targets, and a regulator can audit the firm for compliance. Inspection by the regulator is imperfect, and it assesses the firm’s compliance with the targets with different success probabilities. The firm fully complies only if compliance costs are low. Otherwise, the firm always prioritizes the requirement that is easier to enforce. Expanding regulatory capacity positively affects compliance with the easy-to-enforce target; however, a higher capacity can harm compliance with the hard-to-enforce target.

Suggested Citation

  • Jacopo Gambato & Bernhard Ganglmair & Julia Krämer, 2025. "Regulatory Capacity in a Game of Asymmetric Regulation," CRC TR 224 Discussion Paper Series crctr224_2025_706, University of Bonn and University of Mannheim, Germany.
    • Handle: RePEc:bon:boncrc:crctr224_2025_706
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    File URL: https://www.crctr224.de/research/discussion-papers/archive/dp706
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    Keywords

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    JEL classification:

    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • K20 - Law and Economics - - Regulation and Business Law - - - General
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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