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Compliance Dynamics Generated by Social Interaction Rules

  • Vilen Lipatov

We study compliance dynamics generated by a large set of behavioral rules describing social interaction in a population of agents facing an enforcement authority. When the authority adjusts the auditing probability every period, cycling in cheating-auditing occurs: Intensive monitoring induces compliance, but with high compliance there is incentive for lax monitoring; with less monitoring, compliance starts decreasing, and then there is an incentive to intensify monitoring. Thus, the real life phenomenon of compliance fluctuations is ex-plained by the nature of social interaction process rather than by exogenous parameter shifts. For the authority committed to a fixed auditing probability, we derive a sufficient condition for fines to be effective means of deterrence. Our analysis can be applied, among others, to crime, tax evasion, safety regulations, employment and environmental protection.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4767.

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Date of creation: 2014
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Handle: RePEc:ces:ceswps:_4767
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