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Inspection Intensity and Market Structure

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  • Stéphan Marette

Abstract

An investigation of financing an inspection policy while allowing the enforcement of a market regulation is described. A simple model shows that the intensity of controls depends on the market structure. Under a given number of firms, the per-firm probability of controls is lower than one, since firms' incentive to comply with regulation holds under positive profits. In this case, a lump-sum tax is used for limiting distortions coming from financing with a fixed fee. Under free entry, the per-firm probability of controls is equal to one, and only a fixed fee that prevents excess entry is used to finance inspection.

Suggested Citation

  • Stéphan Marette, 2005. "Inspection Intensity and Market Structure," Food and Agricultural Policy Research Institute (FAPRI) Publications 05-wp412, Food and Agricultural Policy Research Institute (FAPRI) at Iowa State University.
  • Handle: RePEc:ias:fpaper:05-wp412
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    Keywords

    inspection policies; market regulation; regulatory funding.;

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