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Reputation effects in regulatory enforcement

Author

Listed:
  • Laurent Franckx

    (K.U.Leuven, C.E.S., Energy, Transport and Environment
    Royal Military Academy)

Abstract

We show that, under plausible hypotheses, an enforcement agency without commitment power will not undertake any enforcement effort at all in a static game. Indeed, punishment of noncompliant agents brings no social benefits in itself. In a dynamic framework, however, the enforcement agency might inspect private agents in order to develop a reputation that it will inspect in the future. However small the private agents' prior beliefs that they will be inspected, the agency can obtain almost perfect compliance if the game lasts long enough. Our model with reputation effects does however not converge to a model with perfect commitment.

Suggested Citation

  • Laurent Franckx, 2001. "Reputation effects in regulatory enforcement," Energy, Transport and Environment Working Papers Series ete0107, KU Leuven, Department of Economics - Research Group Energy, Transport and Environment.
    • Handle: RePEc:ete:etewps:ete0107
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    File URL: http://feb.kuleuven.be/drc/Economics/misc/ete_workingpapers/ete-wp01-07.pdf
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    Cited by:

    1. François Cochard & Julie Le Gallo & Laurent Franckx, 2015. "Regulation Of Pollution In The Laboratory: Random Inspections, Ambient Inspections, And Commitment Problems," Bulletin of Economic Research, Wiley Blackwell, vol. 67(S1), pages 40-73, December.

    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • K14 - Law and Economics - - Basic Areas of Law - - - Criminal Law
    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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