30 Pages Posted: 6 Dec 2005
Date Written: July 9, 2007
I present a model where a regulator monitors compliance with a policy by a population of individuals, some of whom repeatedly prefer to violate the policy while others occasionally want to experiment. I show that the regulator can use sanctions, contingent on past violations of the policy, to differentiate between the agents and improve welfare. As a result, a regulator prefers investing in enforcement rather than use maximal sanctions.
Keywords: experimentation, overdeterrence, regulation, repeat offenses, underdeterrence
JEL Classification: K4, D6
Suggested Citation: Suggested Citation