Uncertain penalties and compliance

Luengo, Carol; Caffera, Marcelo; Chávez, Carlos

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URI

https://hdl.handle.net/20.500.12806/1334

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Author

Luengo, Carol ; Caffera, Marcelo ; Chávez, Carlos

Editor

Universidad de Montevideo, Facultad de Ciencias Empresariales y Economía, Departamento de Economía

Date

2014

Extensión

31 p.

Abstract

Using a series of laboratory economic experiments, we study the effect of information regarding the amount of the fine on the individual decision to violate an emission standard. Specifically, the analysis considers variations in the information available for the regulated subjects regarding the amount of the monetary sanction, as well as variations in the stringency in the inspection effort by the regulator.Our results suggest that in the case of a regulation design that induces compliance, the presence of uncertainty regarding the amount of the fine may increase violations in certain cases. When enforcement is not sufficient to induce compliance, the uncertainty regarding the amount of the fine does not have any effect on the level of transgression. Overall, the results suggest that a cost-effective regulation design should consider including public information on the consequences of an offense.