Collaborative Research on Asymmetric Information Models of Law Enforcement and Regulatory Compliance

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This is a continuation of a collaborative project by two well known theorists, Drs. Reinganum and Wilde, who have been working on economic analyses of law enforcement and regulatory compliance. Three topics will be examined. The first is an extension of the investigators' work on tax compliance. Corruption will be introduced into the investigators' prior work by allowing for the possibility of tax auditors accepting bribes in exchange for not reporting tax evasion revealed by an audit. Second, a model will be developed which explains when firms will correctly reveal information about new chemical products they produce, and optimal auditing ruling by the EPA in light of this. The model will incorporate how the audit policy of the EPA affects the firm's choice of chemicals to manufacture and the nature of the information supplied to the EPA. Third, a theory of optimal nonmonetary sanctions will be developed where crime (e.g. armed robbery) may increase the likelihood that some other crime (e.g. murder) will be committed. This component of the research will offer normative and positive models of law enforcement. Economic considerations have an important influence on compliance with the law and, thus, on strategies for regulation and law enforcement. Drs. Reinganum and Wilde's work is among the best in trying to balance the realities of enforcement with the simplification necessary for rigorous economic analysis. The research promises to further illuminate the causes and underlying dynamics of compliance and thus is of substantial scientific significance.