Does crime pay? A classroom demonstration of monitoring and enforcement.1. Introduction Enforcement of laws and regulations is a relevant topic in many economics courses, including regulation, law and economics, environmental economics, and economics of crime courses. Although Gary Gary, city (1990 pop. 116,646), Lake co., NW Ind., a port of entry on Lake Michigan; inc. 1909. Gary was founded by the U.S. Steel Corporation, which purchased the land in 1905 and landscaped it for a city. Becker's (1968) seminal seminal /sem·i·nal/ (sem´i-n'l) pertaining to semen or to a seed. sem·i·nal adj. Of, relating to, containing, or conveying semen or seed. model on the economics of crime and punishment Crime and Punishment (Russian: Преступление и наказание) is a novel by Russian author Fyodor Dostoevsky, that was first published in the should be accessible to most classes, there are a number of interesting and important aspects of enforcement that cannot be easily demonstrated through basic models. This article presents a classroom game that highlights some of those aspects, including the dynamics of enforcement, enforcement strategies that take past compliance behavior into account, and the effect of changing the probability of monitoring as well as the severity of enforcement. Moreover, the game highlights areas in which actual behavior may differ from the predictions of theoretical models, as students often react differently to changes in monitoring probability relative to changes in enforcement severity. 2. Conducting the Demonstration This game is designed for 20 "companies." A company may consist of one or more students, although we recommend no more than three students per company to ensure that each student is involved in the decision-making decision-making, n the process of coming to a conclusion or making a judgment. decision-making, evidence-based, n a type of informal decision-making that combines clinical expertise, patient concerns, and evidence gathered from process. (1) Additionally, at least one student will be needed to help run the game. The game can be conducted with printed instructions, record sheets, paper, envelopes, and some means of random selection, such as bingo bingo Game of chance played with cards having a grid of numbered squares corresponding to numbered balls drawn at random. When a number on the card is drawn, the players cover that number (should they have it); the game is won by covering a certain number of squares in a row balls or Scrabble Scrabble Game in which two to four players compete in forming words with lettered wooden tiles on a 225-square board. Words spelled out by letters on the tiles interlock like words in a crossword puzzle. Words are scored by adding up the point values of their letters. [R] tiles. In this game, companies are subject to environmental regulations that require pollution to be remediated. Each day companies must decide whether or not to comply with the regulations. Because pollution removal costs $100, in the absence of enforcement, noncompliance noncompliance failure of the owner to follow instructions, particularly in administering medication as prescribed; a cause of a less than expected response to treatment. noncompliance is more profitable than compliance. However, the regulatory agency regulatory agency Independent government commission charged by the legislature with setting and enforcing standards for specific industries in the private sector. The concept was invented by the U.S. does have an enforcement program. Thus, companies have to weigh the cost of compliance against the expected cost of noncompliance. Each day, the agency's enforcement strategy is announced prior to the time at which the companies choose whether to comply. After companies have made their decisions, the announced strategy is implemented. This design allows students to think about the behavioral behavioral pertaining to behavior. behavioral disorders see vice. behavioral seizure see psychomotor seizure. implications of various enforcement strategies. Additionally, behavior that is inconsistent with theoretical predictions is likely to occur, which allows for a rich discussion of enforcement in general and of how enforcement strategies can be modified to be more effective. Before class, determine how many companies you will have and approximately how many students will comprise each company. (2) If you are going to use a numerical numerical expressed in numbers, i.e. Arabic numerals of 0 to 9 inclusive. numerical nomenclature a numerical code is used to indicate the words, or other alphabetical signals, intended. random selection device such as bingo balls, number the companies. Alternatively, give each company a name starting with a different letter of the alphabet alphabet [Gr. alpha-beta, like Eng. ABC], system of writing, theoretically having a one-for-one relation between character (or letter) and phoneme (see phonetics). Few alphabets have achieved the ideal exactness. and use Scrabble[R] ties as your selection mechanism. To begin the game, distribute the instructions to each student and a record sheet to each company. (3) Additionally, give each company an envelope labeled with their name or number that contains two cards of different colors also marked with the company initial or number. We have used index cards with "Continue to Pollute pol·lute v. 1. To make unfit for or harmful to living things, especially by the addition of waste matter; contaminate. 2. To make less suitable for an activity, especially by the introduction of unwanted factors. " written in red and "Remove Pollution" written in green. Read the instructions out loud to the class and answer any initial questions. (4) Make sure that students understand that the regulator regulator, n the mechanical part of a gas delivery system that controls gas pressure that allows a manageable flow of drug vapor to escape. regulator see reducing valve. can only obtain information through monitoring and that only current behavior can be observed. Once all questions are answered, begin the game by reiterating the baseline The horizontal line to which the bottoms of lowercase characters (without descenders) are aligned. See typeface. baseline - released version enforcement strategy described in the instructions: That is, one of the 20 companies will be randomly selected for inspection, and if found to be in noncompliance, that company will be fined $1000. As the regulator, you should then turn your back or leave the room while each company indicates its decision by holding up one of the two cards. (5) The student assistant should record each decision on the record sheet provided in the Appendix. Once decisions are recorded, randomly select one company to inspect. (6) Ask the student assistant to announce that company's compliance status, and if the company is noncompliant, remind them that they have been fined $1000 and must record the fine amount on their record sheet. Also, have the assistant report overall compliance--number of companies in compliance and number that are not compliant--and write that information on the board or on an overhead. At the beginning of each day, announce the regulatory strategy and have companies make their compliance decisions. Table 1 presents a suggested plan of enforcement strategies, although it is easy to develop alternative strategies if you want to focus the discussion on a particular type of enforcement. After the first day or two, it should take less than two minutes to complete each day. In testing this demonstration, we found it to be particularly effective if we implied that changes in the enforcement regime were influenced by past compliance behavior rather than following some predetermined pre·de·ter·mine v. pre·de·ter·mined, pre·de·ter·min·ing, pre·de·ter·mines v.tr. 1. To determine, decide, or establish in advance: schedule. For example, after day 2 you may want to say that you are increasing the fine level to see whether that action will increase the level of compliance. Figure 1 presents the results from a Law and Economics class at William and Mary Noun 1. William and Mary - joint monarchs of England; William III and Mary II using the enforcement strategies indicated in Table 1. As shown, compliance increases as the expected fine (probability x severity) increases. Note that for days 1 and 2, when noncompliance is profit maximizing, almost all companies are noncompliant. On days 3, 4, 7, and 8, compliance and non-compliance provide the same expected profit, yet the low-probability/high-fine combination induces more compliance than the high-probability/low-fine combination. As discussed in more detail in the next section, this result is consistent with results reported in the experimental literature. Interestingly, when compliance is profit maximizing (as on days 5 and 6), there is still a significant amount of noncompliance. Full compliance occurs only when the expected fine is 2.5 times the cost of compliance, as occurs on days 9 and 10 for third-time offenders. Although the exact percentages vary, we have conducted versions of this experiment in several other classes with qualitatively similar results. [FIGURE 1 OMITTED] 3. Class Discussion As a first step, have students determine what expected punishment makes it optimal for companies to comply in a one-shot One-Shot Heart surgery A device for automatic anastomosis of vessels–eg, coronary arteries in < 2 mins, used with Mini-CABG instruments, which places 12 vascular clips for a complete closure. See Coronary arterial bypass graft. game. Compare this with the results from the demonstration. Is there overcompliance or undercompliance in general? In our experience, there tends to be undercompliance when compliance is profit maximizing and overcompliance on days when noncompliance is optimal. Ask students what factors would contribute to overcompliance and what would contribute to undercompliance in a classroom experiment. For example, in a classroom setting there are limited financial consequences to non-profit maximizing behavior. As a result, when the experiment is placed in the context of environmental protection, overcompliance can result from students wanting to "do the right thing." Alternatively, students may focus on relative earnings and thus be more likely to take risks in order to "beat" another group of students. Discuss which of these behaviors are likely to persist in Verb 1. persist in - do something repeatedly and showing no intention to stop; "We continued our research into the cause of the illness"; "The landlord persists in asking us to move" continue situations in which there are significant financial consequences. Next, focus on the students' responses to increases in the probability of monitoring relative to increases in the severity of the fine. Does one appear to be more effective than another? In research experiments using a public goods context, Anderson Anderson, river, Canada Anderson, river, c.465 mi (750 km) long, rising in several lakes in N central Northwest Territories, Canada. It meanders north and west before receiving the Carnwath River and flowing north to Liverpool Bay, an arm of the Arctic and Stafford Stafford, city (1991 pop. 60,915) and district, Staffordshire, W central England, on the Sow River, above its junction with the Trent. Stafford's chief industry is the manufacture of electrical goods; other products are concrete, shoes and shoe-repairing machinery, (2003) find that subjects respond more to punishment severity than to probability. Block and Gerety (1995) examine this same question using a collusion An agreement between two or more people to defraud a person of his or her rights or to obtain something that is prohibited by law. A secret arrangement wherein two or more people whose legal interests seemingly conflict conspire to commit Fraud framework and find that undergraduate students are more deterred by the severity of the punishment than by the probability of punishment but that the opposite is true for inmates at a correctional facility. Discuss how such results relate to risk-aversion and risk-loving A risk lover is a person who has a preference for risk. While most investors are considered risk averse, one could view casino goers as risk loving. If a person has a discontinuous indifference curve they may also behave in risk loving ways. behavior and ask students to characterize their risk attitudes in this demonstration based on the results. You might also discuss how risk preferences would differ for actual companies as opposed to individuals. Another interesting topic of discussion is how the announcement of compliance status for the monitored companies affected students' decisions. (7) Were they embarrassed to be caught polluting pol·lute tr.v. pol·lut·ed, pol·lut·ing, pol·lutes 1. To make unfit for or harmful to living things, especially by the addition of waste matter. See Synonyms at contaminate. 2. ? Alternatively, did some feel proud to have been caught polluting? Would real companies have a similar reaction? Ask students to think about the difference between the stigma stigma: see pistil. Stigma mark of Cain God’s mark on Cain, a sign of his shame for fratricide. [O. T.: Genesis 4:15] scarlet letter associated with being caught compared to other monetary effects that could result from negative publicity, such as decreases in consumer demand or a drop in stock prices for noncompliant companies. The dynamic nature of the demonstration provides another area for discussion. Ask students who had been inspected how that changed their future behavior. Did anyone think "lightning doesn't does·n't Contraction of does not. strike twice" after being inspected or caught? (8) How about feeling that they were on a "losing streak"? (9) We have found that having been caught generally does not result in more compliance unless past violations increase future punishment. As one student remarked after having been caught polluting twice in a row, "I felt I had to make up for last time." However, when the enforcement strategy includes escalating fines for past violations, we generally find that students alter their compliance behavior. Check to see if all students changed their behavior or if only students who had been caught in the past became more compliant, on average. 4. Extensions and Variations Asymmetric A difference between two opposing modes. It typically refers to a speed disparity. For example, in asymmetric operations, it takes longer to compress and encrypt data than to decompress and decrypt it. Contrast with symmetric. See asymmetric compression and public key cryptography. Costs While the game is currently set in the context of environmental regulation, the story can easily be told in the context of restaurants and health inspections, factories and safety inspections, taxpayers and audits, etc. Regardless of the context, in more advanced classes you may want to vary the costs across companies. For example, you could make some companies organic chemical manufacturers and some paper producers and have different costs for the two types of companies. Not only does this demonstrate the idea that one should not expect all companies to be equally compliant, it can also lead into a discussion of targeting based on characteristics that are likely to be correlated cor·re·late v. cor·re·lat·ed, cor·re·lat·ing, cor·re·lates v.tr. 1. To put or bring into causal, complementary, parallel, or reciprocal relation. 2. with compliance cost. Targeted Enforcement Another method for opening the discussion to targeting is to introduce a targeted enforcement scheme, as follows. After several days--once three or four companies have been found to be noncompliant--announce that half of all companies that have been caught in the past (or one out of three, depending on the number of companies that have been caught) will now be inspected each day, and for those that have never been caught, only one will be selected at random to be inspected. This scenario mimics that of Harrington's (1988) targeted enforcement model with "good" and "bad" groups. Given this enforcement regime, compliance among the bad companies will be profit maximizing, while noncompliance is likely to be more profitable for the good group. We have found that companies quickly reverse their past compliance strategies, with good companies becoming more likely to pollute and bad companies choosing to comply. Contestable Fines For a law and economics class you may want to revise the game in two ways. First, allow companies to contest their fines for a fee of $750. If a company contests, roll a six-sided Adj. 1. six-sided - having six sides many-sided, multilateral - having many parts or sides die. If the die shows one or two, the company does not have to pay the fine (but it does have to pay $750). (10) If the die shows three or four, the fine is cut in half. If the die shows five or six, the company must pay the entire fine. In addition to compliance, track how often companies contest the fine. After all results have been collected, reveal costs that the regulators must pay for inspections and for defending fine assessment. For example, you could assume that each inspection costs $200 and that defending against a company contesting its fine costs $500. Use these costs along with the results to calculate the cost effectiveness of various enforcement schemes, or assign the calculations as a homework exercise. (11) A Public Goods Variation As described above, this exercise assumes away complicated interactions between companies. However, in a public economics class you might prefer to implement our monitoring and punishment scheme in the context of a public goods game The Public goods game is a standard of experimental economics; in the basic game subjects secretly choose how many of their private tokens to put into the public pot. Each subject keeps the tokens they do not contribute plus an even split of the tokens in the pot (researchers . Explain that each company is located on the same lake and has an option to abate abate v. to do away with a problem, such as a public or private nuisance or some structure built contrary to public policy. This can include dikes which illegally direct water onto a neighbors property, high volume noise from a rock band or a factory, an improvement pollution within their factory (at a high cost to that particular company) or pollute the lake. Toxins in the lake cannot be tracked to a particular company, so all companies must share equally in the cost of cleaning up pollution in the lake. You can keep the per-day profit at $1000 and the in-company Two or more units proceeding together under the command of a designated senior. abatement cost Abatement Cost A cost borne by many businesses for the removal and/or reduction of an undesirable item that they have created. Abatement costs are generally incurred when corporations are required to reduce possible nuisances or negative byproducts created during production. at $100. However, if a company chooses not to abate pollution within its factory, it causes $200 worth of damage to the lake. Since lake pollution cannot be tracked to a particular company, all companies must share equally in the clean-up clean-up n → nettoyage m clean-up clean n to give sth a clean-up → etw gründlich sauber machen clean-up n expense (at $200/ 20 = $10 per company). (12) Start the exercise by conducting two days with this new structure and without monitoring or enforcement. After round 2, announce that pollution regulations will be enforced (as described in the instructions in the Appendix, with a $1000 cost for noncompliance within the factory), then continue through the suggested enforcement plan in Table 1. This variation of the game allows you to discuss compliance with environmental regulations as a public good and to explore monitoring as a possible solution to the free rider problem In economics, collective bargaining, psychology and political science, free riders are actors who consume more than their fair share of a resource, or shoulder less than a fair share of the costs of its production. . You can point out that the decision problem without regulation is a prisoner's dilemma prisoner's dilemma Imaginary situation employed in game theory. One version is as follows. Two prisoners are accused of a crime. If one confesses and the other does not, the one who confesses will be released immediately and the other will spend 20 years in prison. in the sense that it is individually optimal for each company to pollute the river regardless of the choices of other companies (since the $100 in-company abatement cost is lower than the $10 per-company cost for lake clean-up). However, all companies make more profit when all pollution abatement A reduction, a decrease, or a diminution. The suspension or cessation, in whole or in part, of a continuing charge, such as rent. With respect to estates, an abatement is a proportional diminution or reduction of the monetary legacies, a disposition of property by will, when is done within factories ($900 vs. the $800 profit if all companies pollute the lake). With interdependence in·ter·de·pen·dent adj. Mutually dependent: "Today, the mission of one institution can be accomplished only by recognizing that it lives in an interdependent world with conflicts and overlapping interests" of profits across companies, it is also interesting to fix the monitoring probability and fine amount for several rounds and to vary whether or not there is an announcement about the compliance status of the monitored company or companies. This will allow you to determine if punishment and announcement have different effects on compliance behavior. You might find that students are more compliant when there is a chance that they will be exposed as free riders Free rider A follower who avoids the cost and expense of finding the best course of action simply by mimicking the behavior of a leader who made these investments. . 5. Concluding Remarks This article describes an exercise that demonstrates several important aspects of regulatory design. By choosing whether to comply with a costly regulation or risk a larger fine, students react to a variety of enforcement schemes. This exercise motivates discussion about the relative effectiveness of increasing the probability of monitoring versus increasing fines for noncompliance. Further, the dynamic nature of the game allows students to think about how past experiences affect compliance behavior. The simplicity of the basic setup See BIOS setup and install program. makes this exercise very easy to adapt for more specialized spe·cial·ize v. spe·cial·ized, spe·cial·iz·ing, spe·cial·iz·es v.intr. 1. To pursue a special activity, occupation, or field of study. 2. topics like targeted enforcement, a fine system that is based on past behavior, and compliance as a public good. Appendix Instructions You own a small business that earns revenues of $1000 a day net of all production costs. State environmental regulations require that you remove pollution from your wastewater before returning the wastewater to the river that adjoins your factory. Pollution removal costs $100 a day above your production costs. Pollution regulations are enforced by the county environmental protection agent. There are a total of 20 businesses in the county that are subject to the same regulation. The agent can inspect one factory a day and chooses randomly each morning which factory to visit by drawing the name of one factory from an urn containing the names of all 20 businesses. If the agent inspects your factory and you have not conducted pollution removal, you will be fined $1000. If the agent inspects your factory and you have conducted pollution removal, you will pay no fine. Discuss with your board of directors whether or not you will conduct pollution removal today. Once all companies have made a decision, the regulator will face the board and you should indicate what you want to do by holding up either a green "Remove Pollution" card or a red "Continue to Pollute" card. The assistant (not the county regulator) will record your decision and track overall pollution levels. However, the assistant cannot report any of what be or she sees to the county regulator, so if your factory was not inspected you cannot be fined and the information on the assistant's record sheet cannot be used against your business. Once the assistant records your decision, put your card back in the envelope. If you conducted pollution removal, record the $100 cost on the Record Sheet in column B for Day 1. After all businesses have made their pollution removal decisions and the decisions have been recorded by the assistant, the county regulator will draw a business name and inspect the factory. If the factory has not conducted pollution removal it will be assessed a fine. References Anderson, Lisa R., and Sarah L. Stafford. 2003. Punishment in a regulatory setting: Experimental evidence from the VCM VCM Vinyl Chloride Monomer VCM Variable Cylinder Management (Honda) VCM Virtual Channel Memory VCM Value Chain Management VCM Voice-Coil Motor VCM Vehicle Control Module VCM Vignette Content Management . Journal of Regulatory Economics Regulatory economics is the economics of regulation, in the sense of the application of law by government that is used for various purposes, such as centrally-planning an economy, remedying market failure, enriching well-connected firms, or benefiting politicians (see 24:91-110. Andreoni, James James, person in the Bible James, in the Gospel of St. Luke, kinsman of St. Jude. The original does not specify the relationship. James, rivers, United States James. , Brian The name Brian (sometimes spelled Bryan) comes from an Irish backround. It is of Celtic origin and its meaning may be "hill" or "strong, noble, and high"[1]. Erard, and Jonathan Jonathan (jŏn`əthən) [short for Jehonathan, Heb.,=Yahweh has given]. 1 In the Bible, Saul's son and David's friend, both killed at the battle of Mt. Gilboa. David showed kindness to his son Mephibosheth. Feinstein Feinstein, Finestein (Yiddish:פֿײַנשטײַן, Hebrew:פינשטיין, פיינשטיין . 1998. Tax compliance. Journal of Economic Literature 36:818-60. Becker, Gary Becker, Gary, 1930–, American economist. A professor at the Univ. of Chicago, he was awarded the 1992 Nobel Memorial Prize in Economic Sciences for extending the scope of microeconomic analysis. . 1968. Crime and punishment: An economic approach. Journal of Political Economy 76:169-72. Block, Michael Michael, archangel Michael (mī`kəl) [Heb.,=who is like God?], archangel prominent in Christian, Jewish, and Muslim traditions. In the Bible and early Jewish literature, Michael is one of the angels of God's presence. K., and Vernon Vernon, city, Canada Vernon, city (1991 pop. 23,514), S British Columbia, Canada, near the north end of Okanagan Lake. The center of a fruit-growing and dairying area, it has packing and dehydrating plants. E. Gerety. 1995. Some experimental evidence on differences between student and prisoner reactions to monetary penalties and risk. Journal of Legal Studies 22:123-38. Camerer Camerer may mean:
n. 1. (Zool.) The American quail or bobwhite. The name is also applied to other related species. See Bobwhite. . 1995. Individual decision making. In The handbook
This article is about reference works. For the subnotebook computer, see .
Press. Harrington, Winston. 1988. Enforcement leverage when penalties are restricted. Journal of Public Economics 37:29-53. (1) The game can be run with fewer companies for smaller classes or if you want students to work in groups. (2) However, if fewer students attend class than anticipated, the game can easily be conducted with fewer companies without the need for modifications (as explained in footnotes throughout the text). (3) In our experience, financial rewards are not necessary to motivate students in classroom games, but to increase interest, you can offer to pay a randomly selected company a small percentage of earnings. (4) If you have fewer companies than planned, announce before beginning the game that X companies are located in a different county, and. thus, while they are not in the room, they are subject to the enforcement process. Therefore, if the probability of inspection is 1 in 20, all 20 companies--not just those present in the classroom are equally likely to be inspected. (5) Make sure that the company initial or number on the cards is large enough so that it can be read by the assistant from the front of the class. Alternatively, the assistant may call each company's name or number in order and then have the company reveal their choice by holding up the appropriate color card. (6) If you have fewer than 20 companies in your class, on some days you may not inspect anyone in the class, since you might randomly select one of the fictitious Based upon a fabrication or pretense. A fictitious name is an assumed name that differs from an individual's actual name. A fictitious action is a lawsuit brought not for the adjudication of an actual controversy between the parties but merely for the purpose of companies in the other county to inspect. (7) A related issue is whether the public revelation of compliance decisions in general could distort incentives. For example, there may be peer effects, particularly if decisions are made sequentially in the same order each day. To explore these issues in more depth, you might consider some treatments in which all decisions are submitted privately. (8) Camerer (1995) refers to this type of belief as the "gambler's fallacy The gambler's fallacy is a formal fallacy. It is the incorrect belief that the likelihood of a random event can be affected by or predicted from other, independent events. " and provides the example that there are significantly fewer bets on a specific lottery lottery, scheme for distributing prizes by lot or other method of chance selection to persons who have paid for the opportunity to win. The term is not applicable when lots are drawn without payment by the interested parties to determine some matter, e.g. number in the few days after it is chosen as a winner. (9) Anderson and Stafford (2003) find that past punishment decreases compliance (defined, in the context of their experiment, as contributions to a public good), while a number of tax experiments have found that compliance improves among participants who had been audited (see Andreoni, Erard, and Feinstein 1998). (10) In this setup, contesting is profitable when fines are greater than $1500. (11) This could also be assigned as·sign tr.v. as·signed, as·sign·ing, as·signs 1. To set apart for a particular purpose; designate: assigned a day for the inspection. 2. as homework for classes that participate in the standard form of the game. Have students calculate who should contest and, assuming no changes in behavior, how this would affect revenue collection and enforcement costs for each day. (12) You should modify the record sheet in the Appendix to reflect this change in the game. Change the column B heading to "In-Company Pollution Removal" and add two new columns between columns B and C. The new column C should be labeled "Number of Companies Not Performing In-Company Pollution Removal," and the new column D should be labeled "Cost of Cleaning the Lake = (C) x $200/20." If you have fewer than 20 companies in your class, you may want to adjust the cost of abatement for pollution in the lake. Lisa R. Anderson * and Sarah L. Stafford ([dagger]) * The College of William and Mary, Department of Economics, Williamsburg, VA, 23187-8795, USA; E-mail lrande@wm.edu. ([dagger]) The College of William and Mary, Department of Economics, Williamsburg, VA, 23187-8795, USA; E-mail slstaf@wm.edu; corresponding author. We thank members of Stafford's fall 2004 and spring 2005 Law and Economics classes and members of Anderson's spring 2005 Experimental Economics class for their feedback and two anonymous reviewers for their comments. Support from the National Science Foundation (SES 334851) is gratefully acknowledged. Received May 2005; accepted July 2005.
Table 1. Suggested Enforcement Strategies
Probability of
Day Inspection Severity of Fine Comments
1 1 in 20 (0.05) $1000 Noncompliance is
profit maximizing.
2 1 in 20 (0.05) $1000 Same as day 1. Allows
you to see if
any companies
change decision.
3 1 in 20 (0.05) $2000 Noncompliance provides
same expected benefit
as compliance.
4 1 in 20 (0.05) $2000 Same as day 3. Allows
you to see if any
companies change
decision, particularly
the one that was
inspected in day 3.
5 2 in 20 (0.10) $2000 Compliance is profit
maximizing.
6 2 in 20 (0.10) $2000 Same as day 5.
7 2 in 20 (0.10) $1000 Noncompliance provides
same expected
benefit as compliance.
Can compare to days 3
and 4 to see if there
is a difference in the
effect of punishment
probability and
punishment severity.
8 2 in 20 (0.10) $1000 Same as day 7.
9 1 in 20 $1000 for first-time Fines depend on
offenders; $2000 compliance history (as
for second-time revealed by an
offenders; $5000 inspection).
for third-time Noncompliance optimal
(or greater) only for companies
offenders with clean records.
For those with past
violations,
compliance is at
least as profitable
as noncompliance.
10 1 in 20 $1000 for first-time Same as day 9.
offenders; $2000
for second-time
offenders; $5000
for third-time
(or greater)
offenders
Record Sheet
Company Name:
Day Net Daily Pollution Fines Paid Daily Profit Cumulative
Revenue Removal Cost Profit
(A) (B) (C) (D) (E)
1 $1,000
2 $1,000
3 $1,000
4 $1,000
5 $1,000
6 $1,000
7 $1,000
8 $1,000
9 $1,000
10 $1,000
Assistant's Record Sheet
Company Day 1 Day 2 Day 3 Day 4 Day 5
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Company Day 6 Day 7 Day 8 Day 9 Day 10
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
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