Monitoring vis-a-vis Investigation in Enforcement of Law

TLDR

Monitoring-based enforcement cannot be tailored to offense severity, whereas investigation-based enforcement can. The regulator should monitor and treat offenses differently by severity when reporting is inadequate or investigation costly, and vary investigation rates and set maximal fines to deter larger offenses. Smaller offenses are deterred by monitoring and graduated fines, while larger offenses are deterred by varying investigation rates and setting maximal fines. © 1992 American Economic Association.

Abstract

Enforcement by monitoring cannot be conditioned on the severity of an offense while enforcement by investigation can be. If some degrees of the offenses are not adequately reported or if investigation is too costly, the regulator must monitor and treat offenses of different severity quite differently. Smaller offenses should not be investigated; they should be deterred by monitoring alone, coupled with graduated fines. To deter larger offenses, the regulator should vary the investigation rate while setting maximal fines. Copyright 1992 by American Economic Association.