New Approaches to Regulatory Enforcement
New Horizons in Law and Economics series
Chapter 4: The reconciliation of deterrence-based and cooperative enforcement
Although aiming at the same final goal of regulatory compliance, the deterrence-based and the cooperative enforcement approaches endorse distinctive enforcement strategies: the deterrence-based enforcement approach endorses “by-the-book,” legalistic enforcement strategies, while the cooperative enforcement approach endorses cooperative, conciliatory ones. In the previous chapters, I showed that each of these distinctive schools of thought is fraught with various perils that may thwart its efficient functioning. This chapter proposes that within the context of corporate regulatory compliance, policymakers are not necessarily required to follow a single enforcement paradigm. Given the heterogeneity of regulatees and their changing preferences, the goal of social welfare maximization favors an inclusive enforcement approach that addresses all types of regulatees, while integrating deterrence-based and cooperative enforcement measures. The main aim of this chapter, then, is to explore regulatory mixed enforcement regimes that accommodate deterrence-based and cooperative enforcement strategies (“mixed regimes”). This chapter is structured as follows: I explore in Section 4.2 the enforcement dilemma in a realistic setting in a world with heterogeneous regulatees. In Section 4.3, I present an analytical framework that applies the game theoretic wisdom to the regulatory compliance context. This analytical framework is, then, used to portray and analyze the major regulatory mixed regimes proposed thus far in the scholarly polemic. In Section 4.4, I discuss the virtues of regulatory mixed regimes from a social standpoint, and in Section 4.5, I flag two major pitfalls of such regulatory mixed regimes that should be considered before these regimes are implemented in particular regulatory contexts.
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