Optimal Fines under Announced and Surprise Inspections

descriptionPublicationkeyboard_double_arrow_right Article , Other literature type 01 Jan 2015 English Publisher:WileyJournal:Journal of Public Economic Theory, volume 18, pages 786-801 (issn: 1097-3923, eissn: 1467-9779,

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Authors: Emmanuel Dechenaux; Andrew Samuel;

doi: 10.1111/jpet.12166 , 10.2139/ssrn.2738804

Optimal Fines under Announced and Surprise Inspections

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Abstract

AbstractThis paper examines optimal fines in a regulatory framework where the regulator can choose either surprise or announced inspections to monitor a firm for compliance. The firm can invest in detection avoidance, but it receives a fine if the regulator discovers that it is noncompliant. In the welfare maximization problem, we focus on the trade‐off between the frequency of inspections and the magnitude of the fine. We find that when inspections are unannounced, the optimal fine is maximal, but when they are announced, the optimal fine may be less than maximal.

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