Ivan P. L. Png

Corruptible Law Enforcers: How Should They Be Compensated?

The authors study the optimal compensation policy for a corruptible inspector charged with monitoring pollution from a factory. Their utilitarian approach focuses on the trade-off among corruption, pollution, and enforcement effort. Owing to the strategic interaction between factory and inspector, changes in compensation policy have surprising effects, e.g., raising the penalty for corruption may cause pollution to increase. The authors find that bribery is an inefficient way of encouraging the inspector to monitor; society should wipe out corruption. Copyright 1995 by Royal Economic Society.

Information Goods Pricing and Copyright Enforcement: Welfare Analysis

We consider how the government should set the fine for copying, tax on copying medium, and subsidy on legitimate purchases, whereas a monopoly publisher sets price and spending on detection. There are two segments of potential software users--ethical users who will not copy, and unethical users who would copy if the benefit outweighs the cost. In deciding on policy, the government must consider how the publisher adjusts price and detection to changes in the fine, tax, and subsidy. Our key welfare result is that increases in detection affect welfare more negatively than price cuts. We also show that the tax is welfare superior to the fine, and that a subsidy is optimal. Generally, government policies that focus on penalties alone will miss the social welfare optimum.

Dimensions of national culture and corporate adoption of IT infrastructure

Corporate adoption of information technology (IT) infrastructure is a critical management issue that may be affected by national culture. Prior research has shown that dimensions of national culture affect development of national IT infrastructure as well as adoption and impact of IT applications. This study explores the impact of two dimensions of national culture (uncertainty avoidance and power distance) on the adoption of a type of IT infrastructure (frame relay). A multinational survey was carried out, and it yielded useable responses from 153 businesses from 24 countries. The results demonstrated that businesses from higher uncertainty avoidance countries were less likely to adopt frame relay. A one-point increase in Hofstedes uncertainty avoidance index for the country of incorporation was associated with a 3% lower likelihood of adopting frame relay. Power distance was not significantly correlated with adoption of frame relay. These results highlight the relevance of dimensions of national culture as factors affecting corporate adoption of IT infrastructure. Implications for practice and further research are presented.

Optimal subsidies and damages in the presence of judicial error

Many regulations and legal rules are framed in terms of standards of behaviour; regulators and courts are liable to make mistakes in enforcing such standards. For instance, some firms that did not emit more pollutants than the standard may be fined while others that did violate the standard escape unpunished. Similarly, a court may find a defendant in breach of contract when in fact, he had performed, and, vice versa, find a defendant who had breached his contract not in breach. The essential problem is that the standards are set in terms of behaviour that is difficult for the regulator/court to observe. So errors will be made in enforcement. The question is then how to adjust for the likelihood of error. One method is to switch to another instrument.’ Another is to vary the standard.* In this paper, I shall present a third alternative: it is to couple an adjustment to the sanction with an appropriate subsidy. The model will refer to judicial error, but is equally applicable to regulatory mistake. In a trial, a court may err in favour of the defendant (Type-I error) or in favour of the plaintiff/prosecutor (Type-II error). These errors impose direct costs on the parties before the court. An example of such a direct cost is the cost of imprisonment of a person mistakenly convicted of a criminal offence. Equally important, since the legal system exists to influence individuals’ choices of activity and care, the prospect of court errors will give rise to indirect costs by affecting such choices. The objective of this paper is to focus on the indirect costs and in particular, to propose methods to correct for both types of error so as to ensure that individuals will make socially efficient choices of activity and care.3 The main results of this paper may be summarized as follows. First, to the extent that an individual who has not violated the law will be made to pay damages, the cost of violating the law, relative to not doing so, will be reduced. The result will be more violations of the law. Hence, to ensure that the choice between violation and non-violation reflects the social cost, it

Marginal Deterrence in Enforcement of Law

We characterize optimal enforcement in a setting in which individuals can select among various levels of some activity, all of which are monitored at the same rate but may be prosecuted and punished at varying rates. For less harmful acts, marginal expected penalties ought to fall short of marginal harms caused. Indeed, some range of very minor acts should be legalized. For more harmful acts, whether marginal expected penalties should fall short of, or exceed, marginal harms depends on the balance between monitoring and prosecution/punishment costs. We also explore how the optimal enforcement policy varies with changes in these costs.

Consumer Privacy and Marketing Avoidance: A Static Model

We introduce the concept of marketing avoidance---consumer efforts to conceal themselves and to deflect marketing. The setting is one in which sellers market some item through solicitations to potential consumers, who differ in their benefit from the item and suffer harm from receiving solicitations. Concealment by one consumer induces sellers to shift solicitations to other consumers, whereas deflection does not. Solicitations cause two externalities: direct harm on consumers and the (indirect) cost of consumer concealment and deflection. We find that in markets where the marginal cost of solicitation is sufficiently low, efforts by low-benefit consumers to conceal themselves will increase the cost-effectiveness of solicitations and lead sellers to market more. However, concealment by high-benefit consumers leads sellers to market less. Furthermore, concealment by low-benefit consumers increases direct privacy harm, and consumer welfare is higher with deflection than concealment. Finally, it is optimal to impose a charge on solicitations.

The Deterrent and Displacement Effects of Information Security Enforcement: International Evidence

We adapt the event study methodology from research in financial economics to study the impact of government enforcement and economic opportunities on information security attacks. We found limited evidence that domestic enforcement deters attacks within the country. However, we found compelling evidence of a displacement effect: U. S. enforcement substantially increases attacks originating from other countries. We also found strong evidence that attackers are economically motivated in that the number of attacks is increasing in the U. S. unemployment rate. Our findings were robust to differences in the effective time window of enforcement and the measurement of vulnerabilities.

Information Security: Facilitating User Precautions Vis-à-Vis Enforcement Against Attackers

We compare alternative information security policies—facilitating enduser precautions and enforcement against attackers. The context is mass and targeted attacks, taking account of strategic interactions between end users and attackers. For both mass and targeted attacks, facilitating end-user precautions reduces the expected loss of end users. However, the impact of enforcement on expected loss depends on the balance between deterrence and slackening of end-user precautions. Facilitating end-user precautions is more effective than enforcement against attackers when the cost of precautions and the cost of attacks are lower. With targeted attacks, facilitating end-user precautions is more effective for users with relatively high valuation of information security, while enforcement against attackers is more effective for users with relatively low valuation of security.

Copyright: A Plea for Empirical Research

I review empirical research into the economic impact of copyright law. A key difficulty is that there is little systematic measurement of creative output and copying: there are only fragmentary statistics for the various industries. Studies of U.S. copyright registrations provide conflicting results: one shows that small changes in fees have large impacts on renewals, while another shows that many movies and books have long lives. All but one studies find that music piracy - whether conventional or digital - has hurt legitimate CD sales. Studies of extensions of copyright duration yield conflicting results: one focusing on U.S. registrations finds no effect, while a multi-country study finds that extensions are associated with substantial increases in movie production. I conclude with directions for future empirical research.

Analyzing Online Information Privacy Concerns: An Information Processing Theory Approach

The advent of the Internet has made the transmission of personally identifiable information common and often inadvertent to the user. As a consequence, individuals worry that companies misuse their information. Firms have tried to mitigate this concern in two ways: (1) offering privacy policies regarding the handling and use of personal information, (2) offering benefits such as financial gains or convenience. In this paper, we interpret these actions in the context of the information processing theory of motivation. Information processing theories, in the context of motivated behavior also known as expectancy theories, are built on the premise that people process information about behavior-outcome relationships. We empirically validate predictions that the means to mitigate privacy concerns are associated with positive valences resulting in an increase in motivational score. Further, we investigate these means in trade-off situation, where a firm may only offer partially complete privacy protection and/or some benefits