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 4: The reconciliation of deterrence-based and cooperative enforcement

New Approaches to Regulatory Enforcement

Sharon Oded


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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