Corporate Compliance
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Corporate Compliance

New Approaches to Regulatory Enforcement

Sharon Oded

This book considers how a regulatory enforcement policy should be designed to efficiently induce proactive corporate compliance. It first explores two major schools of thought regarding law enforcement, both the deterrence and cooperative approaches, and shows that neither of these represents an optimal regulatory enforcement paradigm from a social welfare perspective. It provides a critical analysis of recent developments in US Federal corporate liability regimes, and proposes a generic framework that better tailors sanction schemes and monitoring systems to regulatee performance. The proposed framework efficiently induces corporate proactive compliance, while maintaining an optimal level of deterrence.
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Chapter 2: Deterrence-based regulatory enforcement

New Approaches to Regulatory Enforcement

Sharon Oded


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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