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Journal of Regulatory Economics

, Volume 52, Issue 3, pp 255–284 | Cite as

Discretionary enforcement and strategic interactions between enforcement agencies and firms: a theoretical and laboratory investigation

  • Anna Rita Germani
  • Pasquale Scaramozzino
  • Andrea Morone
  • Piergiuseppe Morone
Original Article

Abstract

This paper presents a game theoretic morphological analysis of the strategic interactions between environmental enforcement authorities and polluting firms. The models explore the role of discretion that such authorities enjoy, either in deciding how to pursue environmental violations (investigative and prosecutorial discretion) or in judging them (judicial discretion). The purpose is to identify both the optimal firms’ behaviour in terms of compliance, and the enforcement authorities’ optimal strategies in terms of enforcement actions to undertake. Consistent with the setting of the game theoretic models, the role of the enforcement agencies in deterring firms from polluting is, then, empirically tested by means of laboratory experiments. Laboratory evidence on compliance behaviour of firms when faced with enforcement conditions predicted by the theoretical models set up is discussed for the different experimental treatments performed. Overall, we suggest that making environmental enforcement less predictable for the firms, and thus creating a degree of uncertainty for the violators, can actually encourage deterrence and, thus, improve compliance. Thus, a partly unpredictable enforcement strategy may generate more compliance than an environmental policy that is known with certainty in advance.

Keywords

Environmental enforcement Discretion Game theory Experimental economics 

JEL Classification

017 004 001 

Notes

Acknowledgements

The authors are grateful to Dennis Cory for having inspired this work and to Sam Fankhauser and Antonio Nicita for their valuable comments on a previous version of the paper, and seminar participants at the University of Rome “La Sapienza”, at the 10th Annual Global Conference on Environmental Taxation, Lisbon, at the 24th Annual Conference of the European Association of Law and Economics (EALE), Copenhagen, and at the 22nd Annual Conference of the European Association of Environmental and Resource Economists (EAERE), Zurich, for useful suggestions.

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Copyright information

© Springer Science+Business Media, LLC 2017

Authors and Affiliations

  1. 1.Department of Law, Philosophy and Economic Studies“Sapienza” University of RomeRomeItaly
  2. 2.School of Finance and Management, SOAS University of LondonLondonUK
  3. 3.Dipartimento di Economia e FinanzaUniversity of Rome Tor VergataRomeItaly
  4. 4.Dipartimento di Economia, Management e Diritto dell’ImpresaUniversità degli Studi di Bari “Aldo Moro”BariItaly
  5. 5.Bioeconomy in Transition Research Group (BiT-RG)Unitelma-Sapienza University of RomeRomeItaly

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