The Desirability of Forgiveness in Regulatory Enforcement
35 Pages Posted: 27 May 2013
Date Written: May 24, 2013
I present a model that explains two common features of regulatory enforcement: selective forgiveness of noncompliance, and the collection of information on a fi rm's compliance activities and not just its compliance status. I show that forgiving noncompliance is optimal if the information on a firm's compliance activities constitutes sufficiently strong evidence of the fi rm having exerted a high level of compliance effort. The key benefit of forgiving noncompliance is a reduction in the probability with which the firm needs to be monitored. If fines are costly, a further benefit is a reduction in fine costs.
Keywords: enforcement of regulation, selective enforcement, Harrington paradox
JEL Classification: L51, K42, K32, D86
Suggested Citation: Suggested Citation