Formal and informal quota enforcement

Abstract

I study renewable resource use and compliance in a dynamic model with both informal and formal modes of enforcement. Agents obtain utility from both resource use and from behaving according to a norm of quota compliance. The users can exceed their quota at the risk of being detected and formally punished, but they also risk informal sanctions in the form of social disapproval and guilt. I find that when accounting for informal enforcement, there is an indirect effect of regulatory change in addition to the intended direct effect. When policy change, such as tougher enforcement, makes individuals more compliant, the norm of compliance is gradually strengthened, which in turn induces more compliant behavior. I study the implications of policy change on compliance level, quota prices, and the norm of compliance, and show how the properties of the punishment function have important implications for the outcome.