Interregional negotiations and strategic delegation under government subsidy schemes

We examine the strategic delegation problem in the context of interregional negotiations under the subsidy policies of a central government. It is well known that when such negotiations are delegated to representatives, each region in a country elects its representative strategically, resulting in inefficient negotiation outcomes. This study focuses on a common subsidy policy called a cost-matching grant to examine whether an optimal grant exists that restores the efficiency of negotiation outcomes. Our results show that the central government obtains this optimal grant if the manipulability of the negotiation breakdown outcome is sufficiently weak. The strength of the manipulability is important because introducing a grant generates a new kind of manipulation of negotiation breakdown outcomes. However, when a new representative is elected after a negotiation breaks down, the new manipulability is negated. Hence, the central government always obtains the optimal cost-matching grant.     

Negotiation over Intellectual Property Rights Protection in a Mixed Market

This article models a North–South negotiation under a mixed oligopolistic setting where a public firm in the South and a private firm from the North compete in the southern market. The southern firm is a public one whose objective is a weighted sum of the South's social welfare and its own profit, whereas the northern firm is a pure profit maximizer. The North provides a quid pro quo in exchange for the strengthening of the enforcement of intellectual property rights (IPR) protection in the South. We show that when the northern and southern firms engage in quantity competition in the southern market, the southern government's optimal choice is either complete protection or complete violation. We show this to depend on the southern government's valuation of the quid pro quo. Moreover, strengthening IPR protection will deepen the privatization process in the South, though it brings about a social welfare loss to the South.     

Enforcement of Intellectual Property,Pollution Abatement,and Directed Technical Change

We theoretically investigate the interaction between endogenous enforcement of intellectual property rights (IPRs) and tax-financed pollution abatement measures. IPRs affect dirty and clean intermediates alike such that higher IPR enforcement may promote the transition to the clean technology, if this technology is productive enough. If the green technology is relatively unproductive, higher IPRs promote the dirty technology while pollution is increasing. As households are due to subsistence consumption subject to a hierarchy of needs, the level of IPR enforcement as well as the level of abatement measures depends on the state of technology and is increasing during economic development. Thus, if the incentive to enforce IPRs is low the level of abatement measures is also low. This argument provides a theoretical foundation for the observed clash of interests in international negotiation rounds regarding the harmonization of IPR protection and actions to combat climate change.     

Optimal dynamic risk sharing when enforcement is a decision variable

Societies provide institutions that are costly to set up, but able to enforce long-run relationships. We study the optimal decision problem of using self-governance for risk sharing or governance through enforcement provided by these institutions. Third-party enforcement is modelled as a costly technology that consumes resources, but permits the punishment of agents who deviate from ex ante specified allocations. We show that it is optimal to employ the technology whenever commitment problems prevent first-best risk sharing and fixed costs are sufficiently low, but never optimal to provide incentives exclusively via this technology. Commitment problems then persist and the optimal incentive structure changes dynamically over time with third-party enforcement monotonically increasing in the relative inequality between agents.     

Efficient contract enforcement

We study how the efficient choice of contract enforcement interacts with the efficient allocation of capital in a simple production economy. Contract enforcement makes trade possible but requires an aggregate investment of capital that is no longer available for production. In such an economy, more dispersion in ex-ante marginal products makes it optimal to invest more resources in enforcement. Furthermore, implementing the optimal allocation requires a specific distribution of the cost for enforcement across agents that is not monotonic and results in a redistribution of endowments. At the efficient solution, agents at the bottom of the endowment distribution benefit the most from investment in enforcement and these investments lead to a reduction in consumption and income inequality.     

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

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.     

Prosecutorial Resources, Plea Bargaining, and the Decision to Go to Trial

This article examines the strategic interaction between a defendantand a prosecutor during the plea bargaining process. A four-stagegame of incomplete information is developed where the defendant'sguilt or innocence is private information but the amount ofresources available to the prosecutor is common knowledge. Thebasic result of the article is that equilibrium is semiseparating;the plea offer is accepted by a proportion of the guilty defendantsand is rejected by all of the innocent defendants and the remainingguilty defendants. In this model an increase in the resourcesavailable to the prosecutor increases the proportion of guiltydefendants who accept plea offers. Although the prosecutor isunable to generate complete separation of the guilty and innocentdefendants through the plea bargaining process, prosecutorialresources are beneficial from a societal standpoint.     

Dynamic Law Enforcement with Learning

This article modifies a standard model of law enforcement toallow for learning by doing. We incorporate the process of enforcementlearning by assuming that the agency's current marginal costis a decreasing function of its past experience of detectingand convicting. The agency accumulates data and information(on criminals, on opportunities of crime), enhancing the abilityof future apprehension at a lower marginal cost. We focus onthe impact of enforcement learning on optimal compliance rules.In particular, we show that the optimal fine could be less thanmaximal and the optimal probability of detection could be higherthan otherwise. It is also suggested that the optimal imprisonmentsentence could be higher than otherwise.     

互动中的社区管理——克什克腾旗皮房村民组民主协商草场管理的实验

本文是对村民与政府协商解决草原退化的一个行动研究的分析。在这个研究中,我们对草原保护政策中所存在的问题进行了分析,认为一刀切的草原政策和村民被排除在政策的制定和实施之外是导致草原退化的重要原因,也是草原恢复保护政策难以实现其预期目标的原因。我们认为村民参与的协商和规划是解决这个问题的有效途径。通过实验,我们发现建立稳定的协商关系需要制度和政策的保障,草原环境保护政策应以鼓励村民参与和发挥村民集体行动的能力为核心。     

KNOWLEDGE ACCUMULATION WITHIN AN ORGANIZATION

In this article, we consider a knowledge accumulation problem within an organization that cannot prevent the worker from quitting and using the knowledge outside the organization. We show that knowledge accumulation is delayed: The fraction of working time allocated to knowledge creation is highest at the early career stage, falls gradually, then rises again, before falling finally toward zero. We determine the effect of a change in the severity of the enforcement problem (or the specificity of knowledge). We also discuss the form of the optimal life‐cycle wage profiles, the role of the initial knowledge level, and the role of discounting.     

Spatial distribution of species populations,relative economic values,and the optimal size and number of reserves

We examine the tradeoff between the number and average size of nature reserves. When the costs of enforcing reserve boundaries are negligible, we find analytically that the relative price of biodiversity has a positive impact on the optimal total reserved area but an ambiguous impact on the optimal number of reserves. Simulation modeling of floral diversity in a tropical timber concession reveals that the resolution of this ambiguity depends on spatial distributions of the populations of tree species: whether or not they are spatially aggregated (clumped). The impact of biodiversity price on optimal reserve number remains analytically ambiguous when enforcement costs are not negligible. Multiple reserves being economically superior to a single reserve now requires, in addition to aggregation, a biodiversity price that is sufficiently high to offset the effects of enforcement costs. Most of our simulation scenarios generate threshold biodiversity prices that do not exceed a leading estimate of the marginal value of a higher plant species in the bioprospecting literature. Several smaller reserves evidently can be economically superior to a single larger one even in the presence of enforcement costs.      

Banking, contract enforcement and economic growth

We develop a new model that links credit contracts enforcement to banking emergence and economic growth. It is shown that the development process is composed of three stages. In the first stage, the economy develops slowly due to a primitive technology of capital accumulation. The second stage marks the emergence of banking and the substitution of the primitive technology by a more productive modern technology that enhances growth. Finally in the third stage, our model enables the realization of a dynamic capital accumulation scenario without credit rationing. Another finding is that a reduction in the enforcement cost accelerates the emergence of the banking system.     

Breaking the law when others do: A model of law enforcement with neighborhood externalities

A standard assumption in the economics of law enforcement is that the probability of a violator being punished depends only on the resources devoted to enforcement. However, it is often true that the productivity of enforcement resources decreases with the number of violators. In this paper, an individual who violates the law provides a positive externality for other offenders because the probability of being punished decreases with the number of individuals violating the law. This externality explains the existence of correlation between individuals’ decisions to break a law. The model evaluates the implications when determining the socially optimal enforcement expenditure, focusing specifically on the case of neighborhood crime. In particular, using a parametrized functional form, I show that neighborhood externalities will enhance or impede enforcement, depending on the crime rate.     

INTERNATIONAL ANTITRUST ENFORCEMENT AND MULTIMARKET CONTACT*

This article analyzes cartel formation and international antitrust enforcement when multinational firms operate in several jurisdictions with local antitrust authorities. We are concerned with how the sustainability of collusion in one local market is affected by the existence of collusion in other markets when they are linked by a negative demand relationship. The interdependence of cartel stability across markets leads to potential externalities in antitrust enforcement across jurisdictions. Local antitrust enforcement equilibrium enforcement may exhibit a nonmonotonicity in the degree of market integration. We compare it with globally optimal antitrust enforcement policy and discuss the role of international antitrust coordination.     

Non‐Governmental Public Norm Enforcement in Large Societies as a Two‐Stage Game of Voluntary Public Good Provision

In small groups, norm enforcement is achieved through mutual punishment and reward. In large societies, norms are enforced by specialists such as government officials. However, not every public cause is overseen by states, for instance those organized at the international level. This paper shows how nongovernmental norm enforcement can emerge as a decentralized equilibrium. As a first stage, individuals voluntarily contribute to a nongovernmental agency that produces an incentive system. The second stage is the provision of a public good on the basis of private contributions. The incentive system increases contributions by means of public approval or disapproval of behavior. It is shown that, even in large populations, nongovernmental norm enforcement can be supported in a noncooperative equilibrium of utility‐maximizing individuals. This result is in sharp contrast to those obtained in the standard situation of voluntary provision of an intrinsic public good which—without altruism or related motives—is eroded by free‐riding. Reliance on altruistic behavior is not required in supplying the second‐order public good “norm enforcement” in large societies.     

ON THE NEUTRALITY OF COALITION FORMATION IN A PURE BARGAINING PROBLEM*

We consider the sequential bargaining game à la Stahl–Binmore–Rubinstein with random proposers, juxtaposing an ex ante coalition formation stage to their bargaining game. On the basis of the expected outcomes in the negotiation over how to split a dollar, players can form coalitions in a sequential manner, within each of which they can redistribute their payoffs. It turns out that the grand coalition does form, and that each player receives his discounted expected payoff, which is obtained by playing as a single player in the negotiation, although there could be many equilibria in the bargaining stage.     

Lie aversion and self-reporting in optimal law enforcement

Requirements that individuals or companies self-report violations are common in regulation and law enforcement. This paper studies how violators’ aversion to lying affects the design and merit of enforcement regimes that require self-reporting. Even when a self-reporting requirement produces costs of lies and enjoys no economic advantage in the absence of lie aversion, I find that self-reporting improves enforcement efficiency. With lie aversion, self-reporting enables greater deterrence of violations at a lower cost of monitoring. Corollaries to this result are that (1) the presence of lie aversion enhances social welfare; (2) enforcement regimes that elicit more noxious lies when false reports are made—for example, a compulsory versus voluntary self-reporting feature—are advantageous; and (3) under an optimal enforcement regime, lying generally occurs and the self-reporting sanction is higher than the average sanction for a false report.     

Plea bargaining: on the selection of jury trials

We consider a model of the criminal court process, focusing on plea bargaining. A plea bargain provides unequal incentives to go to trial because innocent defendants are more willing to plead not guilty. We show that the court process implements the preferences of the person or group who is most concerned about wrongful conviction. If a prosecutor is more concerned about wrongful conviction than the jury, the prosecutor can shape the defendant pool at trial so that jurors act according to prosecutor’s preferences against judicial mistakes. Our model also connects insights from strategic jury models that usually omit plea bargaining with the actual criminal court process where most cases are resolved through plea bargaining. As an example, we show that the inferiority of the unanimity rule established in Feddersen and Pesendorfer (Am Polit Sci Rev 92(1):23–35, 1998) persists in spite of the addition of plea bargaining.     

The Importance of Being Honest*

Given individual propensities to cheat (stealing, overcharging, etc.), the optimality conditions for the amount of resources devoted to law enforcement and for the severity of penalties on convicted cheats are derived. In some interesting cases, the optimal penalty equals the market price divided by the probability of conviction and it is optimal to spend very little on enforcement and impose a severe penalty. These conclusions seem to apply to the practical case of metered parking violation.