Setting Standards for Credible Compliance and Law Enforcement

Posted: 10 Oct 2000

See all articles by Marcel Boyer

Marcel Boyer

CIRANO, Université de Monréal

Tracy R. Lewis

Duke University, Fuqua School of Business-Economics Group; National Bureau of Economic Research (NBER); Duke University - Department of Economics; Duke Innovation & Entrepreneurship Initiative

Wei-Lin Liu

School of Finance, Shanghai University of Finance and Economics (SUFE)

Abstract

In this paper we examine the setting of optimal legal standards to simultaneously induce parties to invest in care and to motivate law enforcers to detect violators of the law. The strategic interaction between care providers and law enforcers determines the degree of efficiency achieved by the standards. Our principal finding is that some divergence between the marginal benefits and marginal costs of providing care is required to control enforcement costs. Further, the setting of standards may effectively substitute for the setting of fines when penalties for violation are fixed. In particular, maximal fines may be welfare reducing when standards are set optimally.

Suggested Citation

Boyer, Marcel and Lewis, Tracey R. and Liu, Wei-Lin, Setting Standards for Credible Compliance and Law Enforcement. Canadian Journal of Economics, Vol. 33, No. 2, May 2000, Available at SSRN: https://ssrn.com/abstract=238554

Marcel Boyer (Contact Author)

CIRANO, Université de Monréal ( email )

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Tracey R. Lewis

Duke University, Fuqua School of Business-Economics Group ( email )

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Durham, NC 27708-0097
United States

National Bureau of Economic Research (NBER)

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Duke University - Department of Economics ( email )

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Duke Innovation & Entrepreneurship Initiative ( email )

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Wei-Lin Liu

School of Finance, Shanghai University of Finance and Economics (SUFE) ( email )

Shanghai, 200433
China

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