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Norm Flexibility and Private Initiative

Giovanni Immordino (), Marco Pagano () and Michele Polo ()

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: We model an enforcement problem where firms can take a known and lawful action or seek a profitable innovation that may enhance or reduce welfare. The legislator sets fines calibrated to the harmfulness of unlawful actions. The range of fines defines norm flexibility. Expected sanctions guide firms’ choices among unlawful actions (marginal deterrence) and/or stunt their initiative altogether (average deterrence). With loyal enforcers, maximum norm flexibility is optimal, so as to exploit both marginal and average deterrence. With corrupt enforcers, instead, the legislator should prefer more rigid norms that prevent bribery and misreporting, at the cost of reducing marginal deterrence and stunting private initiative. The greater is potential corruption, the more rigid the optimal norms.

Keywords: norm design; initiative; enforcement; corruption (search for similar items in EconPapers)
JEL-codes: D73 K21 K42 L51 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-law
Date: 2006-09-01, Revised 2006-11-01
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