Transcript Optimising Enforcement Professor Anthony Heyes MA PhD FRSA Royal Holloway College University of London.

Optimising
Enforcement
Professor Anthony Heyes MA PhD FRSA
Royal Holloway College
University of London
Two dimensions
The ‘anatomy’ of enforcement - design of
enforcement agencies and practices
 The ‘calibration’ of enforcement – setting the
intensity of activities
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Calibration
 Impact
of marginal $ spent on alternative
activities should be equated
 Resource allocation issue
 Marginal impact difficult to measure but
agencies should reflect and adjust
Example
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Nadeau (JEEM 1997) US paper pulp industry
compliance with water and air regulations
10% increase in EPA monitoring activity leads
to a 0.6-4.0% decrease in time in violation
10% increase in EPA enforcement activity leads
to a 4-4.7% decrease in time in violation
Need to convert into dollars to assess
optimisation
Objectives
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Depends on objective function: maximizing
welfare? Maximizing compliance rate for given
enforcement budget?
Impacts status of industry costs
And don’t trivialise red-tape costs (evidence that
these can be substantial)
Target on basis of characteristics
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‘Profiling’
Violation risk depends upon observables
characteristics of firms (e.g. size, technology)
But beware ‘Lucas Critique’ (e.g. EMS)
Observables vs ‘Corporate Culture’
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Gray and Deily (JEEM 1996) – well-known
application to US steel, firm-specific
characteristics don’t matter much, but “residual
corporate attitude towards compliance” matters
Project: Expand set of observables (e.g.
corporate ‘mindset’ – Vazquez et al Argentina)
Motivation for compliance
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Need to understand motivation for noncompliance, ‘beyond Becker’
Role of ignorance (especially amongst ‘small’
players)
Psychology of compliance e.g. Winter and May
(JPAM 2001) regulatory compliance amongst
Danish farmers on role of legalism vs. flexibility
Examples
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Many examples of ‘compliance propensity’ function
being estimated
Example 1: Dietrich (JEEM 2004) wastewater
discharges in Kansas 1990-98
Example 2: Kang and Lee (E&DE 2004) air emissions
in Korea 1987-89
Example 3: Rousseau (M/S 2004) water permits
violations in textile industry, Belgium – role of
‘environmental coordinator’
Target on basis of past performance
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Lots of academic interest in ‘inter-temporal
optimisation’
‘Penalty Leverage’ - poor performers put into
high scrutiny group until improve
Can substantially improve efficiency of
enforcement program
Lots of evidence of targeting based on past
performance, but optimised ?
Example
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Eckert (JEEM 2004), leaks from petroleum
storage tanks in Manitoba
2-stage probit model of role of inspections and
prosecution
Inspection/warnings matter, but not much –
simulate 2x inspection rate, reduces violations in
Winnipeg by 9%.
Prosecutions drive incentives
Random things to think about
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‘Tournament Theory’ – enforcement based on
relative performance, exploit more systematically
‘Regulatory dealing’ – buying over-performance
in one area ‘in exchange for’ relief elsewhere
‘Regulatory style’ – psychology of enforcement,
and compatibility with corporate attitudes
Other penalties – ‘naming and shaming’,
criminal sanctions against individuals etc.