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Regulatory Enforcement with Discretionary Fining and Litigation
Author(s) -
Rodríguez–Ibeas Roberto
Publication year - 2002
Publication title -
bulletin of economic research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.227
H-Index - 29
eISSN - 1467-8586
pISSN - 0307-3378
DOI - 10.1111/1467-8586.00142
Subject(s) - enforcement , negotiation , agency (philosophy) , balance (ability) , set (abstract data type) , regulator , economics , microeconomics , power (physics) , business , compliance (psychology) , law , political science , computer science , medicine , psychology , social psychology , philosophy , biochemistry , chemistry , physics , epistemology , quantum mechanics , physical medicine and rehabilitation , gene , programming language
In this paper, we focus on the determination of the optimal fine set by a regulator when a firm can litigate to avoid paying the fine and the monitoring agency has discretionary power to negotiate with the firm the size of the fine. The regulator needs to balance the positive effect of the fine’s size on the degree of non–compliance and the possibility of litigation if the fine is too high. We find that the optimal fine is not necessarily set at its maximum level.