From Enforcement to Compliance-Enforcement Governance: The Role of Institutional Credibility

Socio-environmental issues are often studied by focusing on enforcement or compliance in isolation, with emphasis on sanction design. This study proposes a joint compliance-enforcement framework, in which sustainable governance emerges from the balanced, cyclical interaction between firms' compliance decisions and authorities' institutional capacities. The holder' s compliance decision is modeled as an expected-utility maximization problem. We formally derive that the post-detection probability-as a measure of institutional credibility-exerts a stronger marginal influence on holders' compliance than the raw detection probability. This result holds through two independent channels: Arrow-Pratt global risk-aversion and information-theoretic foundations. Sustainable incentives are modeled as a positive integral payoff, distinct from the illicit-benefit deterrence. The governance multiplier result shows that improving post-detection probability simultaneously amplifies both deterrence and incentive channels. The framework is illustrated using stylized facts from large-scale fisheries in Peru and yields three testable implications with falsification conditions on compliance effort and repercussions.