New Approaches to Regulatory Enforcement
New Horizons in Law and Economics series
Chapter 2: Deterrence-based regulatory enforcement
Corporations in modern societies are subject to an ever-growing array of regulations that standardize substantial aspects of their business activities. Such regulations, including environmental, health and safety, antitrust, employment, and securities regulations, are aimed at controlling and restricting corporate behavior in order to achieve desirable social ends. To be socially valuable, regulations must be obeyed. Hence, from a social welfare perspective, the actual value of regulations is highly contingent upon the existence of a well-functioning enforcement policy that secures their implementation. Therefore, the key element of a socially desirable regulatory system is an appropriately crafted enforcement policy that optimally ensures the obedience of the regulatees. Various philosophies have been developed throughout the years as to the optimal design of regulatory enforcement policies. In this chapter and the following one, I present the two major schools of thought regarding law enforcement: the deterrence-based enforcement approach and the cooperative enforcement approach. Both schools share the same objective, i.e., ensuring compliance in a socially desirable manner. Yet, each approach endorses different strategies to achieve this objective. On the one hand, the deterrence-based approach coerces compliance through a confrontational enforcement style that is centered upon sanctioning violators. By contrast, cooperative enforcement fosters regulatory compliance through cooperative governance, bargaining, and persuasion methods. What are the bedrocks of these different schools of thought? What are the pitfalls of each of them? In what follows, I wish to shed some light on these fundamental questions.
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