The use of warnings in the presence of errors

This article studies the effects of warnings, an enforcement instrument which is often used by environmental inspection agencies. Due to regulatory errors, measured emissions are uncertain and some firms are unjustly penalized. Warnings can then be used as a means to reduce the consequences of these errors. Even though the presence of warnings creates some underdeterrence of medium-cost firms, such a system reduces the overcompliance of low-cost firms caused by the uncertainty surrounding measured emissions. Further, warnings reduce the number of incorrect prosecutions in the case of measurement errors, which is also welfare enhancing, albeit at the cost of increasing the number of violators that go unpunished. For small error sizes, the use of warnings is shown to be welfare improving compared to only using fines.

[1]  A. Malik,et al.  Self-Reporting and the Design of Policies for Regulating Stochastic Pollution , 1993 .

[2]  Eef Delhaye.  The Enforcement of Speeding: Should Fines Be Higher for Repeated Offences? , 2005 .

[3]  K. Telle,et al.  Firms’ Compliance to Environmental Regulation: Is There Really a Paradox? , 2006 .

[4]  John E. Calfee,et al.  Deterrence and Uncertain Legal Standards , 1986 .

[5]  R. Cooter,et al.  Law and Economics , 1988 .

[6]  Wayne L. Winston.  Operations research: applications and algorithms / Wayne L. Winston , 2004 .

[7]  Clifford S. Russell,et al.  GAME MODELS FOR STRUCTURING MONITORING AND ENFORCEMENT SYSTEMS , 1990 .

[8]  Winand Emons.  Escalating Penalties for Repeat Offenders , 2003 .

[9]  S. Shavell.  The Optimal Use of Nonmonetary Sanctions as a Deterrent , 1985 .

[10]  R. Innes.  Violator Avoidance Activities and Self‐Reporting in Optimal Law Enforcement , 2001 .

[11]  A. Malik.  Avoidance, screening and optimum enforcement , 1990 .

[12]  J. Harford.  Measurement error and state-dependent pollution control enforcement , 1991 .

[13]  Daniel Klerman,et al.  Corruption and the optimal use of nonmonetary sanctions , 2004 .

[14]  Sandra Rousseau,et al.  Timing of environmental inspections: survival of the compliant , 2007 .

[15]  Clifford S. Russell,et al.  Enforcing Pollution Control Laws , 1986 .

[16]  Henk Folmer,et al.  The International Yearbook of Environmental Resource Economics 2001/2002 , 2001 .

[17]  Winand Emons.  A Note on the Optimal Punishment for Repeat Offenders , 2003 .

[18]  D. Rubinfeld,et al.  A Model of Optimal Fines for Repeat Offenders , 1991 .

[19]  Punishing the Innocent along with the Guilty: The Economics of Individual versus Group Punishment , 2004, The Journal of Legal Studies.

[20]  Ronald Dworkin,et al.  Taking Rights Seriously , 1977 .

[21]  Winston Harrington,et al.  Enforcement leverage when penalties are restricted , 1988 .

[22]  C. Chu,et al.  Punishing repeat offenders more severely , 1997 .

[23]  Mats Persson,et al.  The Becker Paradox and Type I Versus Type II Errors in the Economics of Crime , 2007 .

[24]  Winand Emons.  Subgame Perfect Punishment for Repeat Offenders , 2002 .

[25]  M. Cohen.  Monitoring and Enforcement of Environmental Policy , 1998 .

[26]  The role of warnings in regulation: keeping control with less punishment , 2004 .

[27]  Optimal punishment when individuals may learn deviant values , 2001 .

[28]  H. Eckert,et al.  Inspections, warnings, and compliance: the case of petroleum storage regulation , 2004 .

[29]  Steven Shavell,et al.  The Economic Theory of Public Enforcement of Law , 1998 .

[30]  P. Bose.  Regulatory errors, optimal fines and the level of compliance , 1995 .

[31]  Jinhuan Zhao.  Irreversible Abatement Investment Under Cost Uncertainties: Tradable Emission Permits and Emissions Charges , 2001 .