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Norm Flexibility and Private Initiative

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Abstract

We model an enforcement problem where firms can take a known and lawful action or seek a profitable innovation that may enhance or reduce welfare. The legislator sets fines calibrated to the harmfulness of unlawful actions. The range of fines defines norm flexibility. Expected sanctions guide firms’ choices among unlawful actions (marginal deterrence) and/or stunt their initiative altogether (average deterrence). With loyal enforcers, maximum norm flexibility is optimal, so as to exploit both marginal and average deterrence. With corrupt enforcers, instead, the legislator should prefer more rigid norms that prevent bribery and misreporting, at the cost of reducing marginal deterrence and stunting private initiative. The greater is potential corruption, the more rigid the optimal norms.

Suggested Citation

  • Giovanni Immordino & Marco Pagano & Michele Polo, 2006. "Norm Flexibility and Private Initiative," CSEF Working Papers 163, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 01 Nov 2006.
    • Handle: RePEc:sef:csefwp:163
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    1. Giovanni Immordino & Marco Pagano, 2010. "Legal Standards, Enforcement, and Corruption," Journal of the European Economic Association, MIT Press, vol. 8(5), pages 1104-1132, September.
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    Cited by:

    1. Leonardo Felli & Giovanni Immordino & Alessandro Riboni & Luca Anderlini, 2008. "Legal Origins and Creative Destruction," 2008 Meeting Papers 733, Society for Economic Dynamics.
    2. Giovanni Immordino & Michele Polo, 2008. "Judicial Errors, Legal Standards and Innovative Activity," CSEF Working Papers 196, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 04 Jun 2010.

    More about this item

    Keywords

    norm design; initiative; enforcement; corruption;

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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