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Uncertain Penalties and Compliance

Author

Listed:
  • Carol Luengo
  • Marcelo Caffera

  • Carlos Ch vez

Abstract

Using a series of laboratory economic experiments, we study the effect of information regarding the amount of the fine on the individual decision to violate an emission standard. Specifically, the analysis considers variations in the information available for the regulated subjects regarding the amount of the monetary sanction, as well as variations in the stringency in the inspection effort by the regulator. Our results suggest that in the case of a regulation design that induces compliance, the presence of uncertainty regarding the amount of the fine may increase violations in certain cases. When enforcement is not sufficient to induce compliance, the uncertainty regarding the amount of the fine does not have any effect on the level of transgression. Overall, the results suggest that a cost-effective regulation design should consider including public information on the consequences of an offense.

Suggested Citation

  • Carol Luengo & Marcelo Caffera & Carlos Ch vez, 2014. "Uncertain Penalties and Compliance," Documentos de Trabajo/Working Papers 1407, Facultad de Ciencias Empresariales y Economia. Universidad de Montevideo..
    • Handle: RePEc:mnt:wpaper:1407
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    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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