Cooperation, Deterrence, and the Ecology of Regulatory Enforcement

Abstract

An ecological model based on evolutionary game theory is developed to analyze the role of egoistic cooperation in regulatory enforcement. The model demonstrates that socially beneficial cooperation depends on 1) a combination of cooperative and deterrence routines in an enforcement strategy that is at once vengeful and forgiving, 2) firms concerned enough about future enforcement encounters to forgo short-term gains from evasion, and 3) institutional arrangements that provide suitable sanctions and cost tradeoffs for existing enforcement and evasion technologies in the particular enforcement arena. Factors limiting the advantage of cooperation are also reviewed, and other applications of the model are suggested.