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Lie aversion and self-reporting in optimal law enforcement

Robert Innes ()

Journal of Regulatory Economics, 2017, vol. 52, issue 2, 107-131

Abstract: Abstract Requirements that individuals or companies self-report violations are common in regulation and law enforcement. This paper studies how violators’ aversion to lying affects the design and merit of enforcement regimes that require self-reporting. Even when a self-reporting requirement produces costs of lies and enjoys no economic advantage in the absence of lie aversion, I find that self-reporting improves enforcement efficiency. With lie aversion, self-reporting enables greater deterrence of violations at a lower cost of monitoring. Corollaries to this result are that (1) the presence of lie aversion enhances social welfare; (2) enforcement regimes that elicit more noxious lies when false reports are made—for example, a compulsory versus voluntary self-reporting feature—are advantageous; and (3) under an optimal enforcement regime, lying generally occurs and the self-reporting sanction is higher than the average sanction for a false report.

Keywords: Self-reporting; Law enforcement; Lie aversion (search for similar items in EconPapers)
JEL-codes: K42 K32 D23 (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:kap:regeco:v:52:y:2017:i:2:d:10.1007_s11149-017-9329-7