School of Business Administration Seminar Series
Dongryul Lee
Assistant Professor, Department of Economics,
Sungshin University
ABSTRACT
We analyze a strategic situation in which a firm may conceal the illegal
activity of violating environmental regulations and a regulator seeks to
verify the illegality to punish the firm, while considering two enforcement
policy instruments: fines and social monitoring. We first specify all the
possible equilibria of our model and examine conditions that lead to each
equilibrium. Using the equilibrium conditions, we then study the optimal
enforcement policy that induces the most socially desirable equilibrium.
Our main findings are as follows. First, the two policy instruments have a
complementary relationship in getting the most desirable equilibrium.
Second, if setting the social monitoring at high level is sufficiently costly,
setting the level of the fines as high as possible is the optimal enforcement
policy. Finally, if implementing the high level of the fines is also sufficiently
costly, setting the level of the fines as low as possible might be optimal.
Date & Time : Jan 30th(Fri), 2015 at 1:30 pm
Location : BAB 601-3
Contact : Prof. Chung Keunsuk(3126)
[email protected]