Laurent Franckx

Penalty and Crime with Lumpy Choices Some Further Considerations

This paper clarifies an issue in the Hirshleifer and Rasmusen-Tsebelis controversy on the effects of penalties on crime: what is the effect of penalties if the transgression of law has a discrete nature and if the law enforcer cannot act as Stackelberg leader? We differentiate between technical (compliance costs) and institutional (penalties) parameters in the potential transgressor’s payoff’s functions. Depending on the penalty structure, we obtain equilibria either in pure or in mixed strategies. We confirm that the role played by penalties in mixed strategy equilibria is fundamentally different from the role they play in pure strategies. We also identify sufficient conditions for the implementability and uniqueness of given equilibria when there are restrictions on the penalties and/or on the incentive schemes for the law enforcers. Finally, we give a rationalization for the use of mixed strategies as a solution concept in law enforcement games.

Ambient environmental inspections and commitment towards enforcement policies: substitutes or complements?

Abstract We consider an inspection game between polluting firms and an environmental enforcement agency that can inspect ambient pollution before inspecting individual firms. We assume that the enforcement agencys objectives do not perfectly correspond with the objectives of the legislative body who determines the standards for compliance and the fines for non-compliance, and that the enforcement agency can determine its inspection policy independently. However, contrary to Franckx (2002), we assume that the agency can commit to inspection probabilities. We show that this commitment power radically changes the value of ambient inspections. If the legislator imposes an infinite fine, commitment power and ambient inspections are perfect substitutes: both allow the agency to obtain perfect compliance without actually inspecting firms. However, with upper limits to the fine, ambient inspections and commitment power are complements. Indeed, if the agency does not conduct ambient inspections, it can only obtain perfect compliance by announcing high probabilities of firm inspections. With stringent upper limits to the fine, this implies high inspection costs. However, if the agency conducts ambient inspections, it can announce probabilities of firm inspections that are conditional on behavior that will not be observed in equilibrium, and all firms will comply.

On the regulatory choice of refunding rules to reconcile the 'polluter pays principle' and Pigovian taxation: an application

The ‘polluter pays principle’ (PPP) is one of the four principles that govern the European Unions environmental policy. Although PPP justifies Pigovian taxation as a legitimate policy means to internalise externalities, there is a potential contradiction between PPP and Pigovian taxation depending upon the definition of pollution control costs. We summarise this debate and focus on the lump-sum refunding of tax revenues in order to reconcile the PPP and Pigovian taxation. We propose equity as the guiding principle to select among various refunding schemes, and empirically examine a specific application.