Welfare Enhancing Regulation Exemptions
29 Pages Posted: 8 Apr 2011 Last revised: 24 Jul 2012
Date Written: November 1, 2010
Sanctions for regulation violations are used to deter conduct which could potentially result in great social harms. This practice over-deters low-risk entities and under-deters high-risk entities, which leads to social losses. This paper analyzes whether and how such social losses can be mitigated. I show that this can be achieved by allowing regulatees to purchase passes exempting them from regulations at appropriate prices, although they remain liable for any harm they cause.
Keywords: Regulation, Optimal Deterrence, Exemptions
JEL Classification: K0, K2, K23, K32, K4
Suggested Citation: Suggested Citation