Optimal Fines Under Announced and Surprise Inspections

19 Pages Posted: 3 Mar 2016

See all articles by Emmanuel Dechenaux

Emmanuel Dechenaux

Kent State University - Department of Economics

Andrew Samuel

Loyola University Maryland

Date Written: March 3, 2015

Abstract

This paper examines optimal fines in a regulatory framework where the regulator can choose either surprise or announced inspections to monitor a firm for compliance. The firm can invest in detection avoidance, but it receives a fine if the regulator discovers that it is non-compliant. In the welfare maximization problem, we focus on the trade-off between the frequency of inspections and the magnitude of the fine. We find that when inspections are unannounced, the optimal fine is maximal, but when they are announced, the optimal fine may be less than maximal.

Keywords: Avoidance, Compliance, Regulation, Unannounced inspections

JEL Classification: D21, D82, K42

Suggested Citation

Dechenaux, Emmanuel and Samuel, Andrew, Optimal Fines Under Announced and Surprise Inspections (March 3, 2015). Available at SSRN: https://ssrn.com/abstract=2738804 or http://dx.doi.org/10.2139/ssrn.2738804

Emmanuel Dechenaux (Contact Author)

Kent State University - Department of Economics ( email )

Kent, OH 44242
United States

Andrew Samuel

Loyola University Maryland ( email )

4501 North Charles Street
Baltimore, MD 21210-2699
United States

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