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Discretionary enforcement and strategic interactions between firms, regulatory agency and justice department: a theoretical and empirical investigation

Author Info

  • Germani, Anna Rita
  • Morone, Andrea
  • Morone, Piergiuseppe
  • Scaramozzino, Pasquale

Abstract

This paper presents a game theoretic morphological analysis of the U.S. environmental authorities’ (i.e., EPA and DOJ) behavioural mechanisms, based on strategic interactions among the players. The models explore the role of discretion that such authorities enjoy, either in deciding how to pursue environmental violations (investigative and prosecutorial discretion) or in judging them (judicial discretion). The purpose is to identify both the optimal firms’ behaviour in terms of compliance, and the DOJ’s and EPA’s optimal strategies in terms of enforcement actions to undertake. Consistent with the setting of the game theory models, the role of EPA and DOJ in deterring firms from polluting is, then, empirically tested, by means of a laboratory experiment. Laboratory evidence on compliance behaviour of firms when faced with enforcement conditions predicted by the theoretical models set up is discussed for the different experimental treatments performed.

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File URL: http://mpra.ub.uni-muenchen.de/51369/1/MPRA_paper_51369.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 51369.

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Date of creation: Sep 2013
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Handle: RePEc:pra:mprapa:51369
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Keywords: environmental enforcement; discretion; game theory; experimental economics.;

Find related papers by JEL classification:

  • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
  • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
  • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
  • K0 - Law and Economics - - General
  • K32 - Law and Economics - - Other Substantive Areas of Law - - - Environmental, Health, and Safety Law
  • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
  • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
  • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
  • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects

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  8. Gary S. Becker, 1974. "Crime and Punishment: An Economic Approach," NBER Chapters, in: Essays in the Economics of Crime and Punishment, pages 1-54 National Bureau of Economic Research, Inc.
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  10. Shimshack, Jay P. & Ward, Michael B., 2005. "Regulator reputation, enforcement, and environmental compliance," Journal of Environmental Economics and Management, Elsevier, vol. 50(3), pages 519-540, November.
  11. Rousseau Sandra, 2007. "The Impact of Sanctions and Inspections on Firms’ Environmental Compliance Decisions," Energy, Transport and Environment Working Papers Series ete0704, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Energy, Transport and Environment.
  12. A. Mitchell Polinsky & Steven Shavell, 1982. "The Optimal Use of Fines and Imprisonment," NBER Working Papers 0932, National Bureau of Economic Research, Inc.
  13. Lando, Henrik & Shavell, Steven, 2004. "The advantage of focusing law enforcement effort," International Review of Law and Economics, Elsevier, vol. 24(2), pages 209-218, June.
  14. Eric Rasmusen & Manu Raghav, & Mark Ramseyer, 2008. "Convictions versus Conviction Rates: The Prosecutor’s Choice," Working Papers 2008-16, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  15. Eric Helland, 1998. "The Enforcement Of Pollution Control Laws: Inspections, Violations, And Self-Reporting," The Review of Economics and Statistics, MIT Press, vol. 80(1), pages 141-153, February.
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  17. Thomas BLONDIAU & Sandra ROUSSEAU, 2009. "The impact of judicial objective function on the enforcement of environmental standards," Center for Economic Studies - Discussion papers ces09.21, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
  18. Stafford, Sarah L, 2003. "Assessing the Effectiveness of State Regulation and Enforcement of Hazardous Waste," Journal of Regulatory Economics, Springer, vol. 23(1), pages 27-41, January.
  19. Franckx, Laurent, 2002. "The Use of Ambient Inspections in Environmental Monitoring and Enforcement When the Inspection Agency Cannot Commit Itself to Announced Inspection Probabilities," Journal of Environmental Economics and Management, Elsevier, vol. 43(1), pages 71-92, January.
  20. Subrahmanyam, Avanidhar, 1995. "On rules versus discretion in procedures to halt trade," Journal of Economics and Business, Elsevier, vol. 47(1), pages 1-16, February.
  21. Jones, Carol Adaire & Scotchmer, Suzanne, 1990. "The social cost of uniform regulatory standards in a hierarchical government," Journal of Environmental Economics and Management, Elsevier, vol. 19(1), pages 61-72, July.
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  23. Tom Baker & Alon Harel & Tamar Kugler, 2003. "The Virtues of Uncertainty in Law: An Experimental Approach," Discussion Paper Series dp310, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem.
  24. Stafford, Sarah L., 2002. "The Effect of Punishment on Firm Compliance with Hazardous Waste Regulations," Journal of Environmental Economics and Management, Elsevier, vol. 44(2), pages 290-308, September.
  25. Anderson, Lisa R & Stafford, Sarah L, 2003. "Punishment in a Regulatory Setting: Experimental Evidence from the VCM," Journal of Regulatory Economics, Springer, vol. 24(1), pages 91-110, July.
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