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Collective penalties and inducement of self-reporting

  • Katrin Millock


    (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • David Zilberman


    (Department of Agricultural and Ressource Economics - University of California [Berkeley])

Random accidents can be contained by collective penalties. These penalties are not likely to be enforced but rather induce self-reporting that enhances welfare due to early containment. Self-reporting under collective penalties increases overall welfare, but may increase expected environmental cost. Even when regulation is constrained by an upper limit on the acceptable collective penalty, the threat of collective penalties can induce an incentive-compatible mutual insurance scheme under which a side-payment is made to the agent that self-reports an accident. This self-reporting mechanism is welfare-improving, but first-best outcomes can only be obtained when the collective penalty is unconstrained, or when an honor system applies. In cases when there is a new externality that requires fast response (avian flu), collective penalties can compliment or substitute for monitoring.

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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00118778.

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Date of creation: May 2006
Date of revision:
Publication status: Published in Cahiers de la Maison des Sciences Economiques 2006.48 - ISSN 1624-0340. 2006
Handle: RePEc:hal:cesptp:halshs-00118778
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