Abstract
The importance of penalties in environmental regulation is systematically assessed using game-theoretic modelling and analysis. A formal game model called the Enforcement Dilemma is used to examine a conflict decision problem in which an operator decides to violate or comply with a regulation, while an environmental agency chooses a strict or a lenient enforcement programme. An efficient enforcement policy based on an innovative co-operative strategy called the review strategy is presented and discussed, and methods to increase its practical effectiveness are considered. Numerical and theoretical results show that, in practice, the review strategy sometimes fails to induce full compliance by the operator. In such instances, a supplemental penalty system can sometimes deter the operator from even low levels of violation. Specifically, the optimal combination of penalty severity and measurement allowance is identified. The main results of this research are that even under mild penalties it is possible to select measurement allowance levels—neither too low nor too high—that induce full compliance by the regulated operator.
Published Version
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