Working Paper: CEPR ID: DP4992
Authors: Yolande Hiriart; David Martimort; Jérôme Pouyet
Abstract: When firms undertake activities which are environmentally risky, the divergence between social and private incentives to exert safety care requires public intervention. This control occurs both through ex ante regulation and ex post legal investigation. We delineate the respective scopes of those two kinds of monitoring when regulators and judges may not be benevolent. Separation between the ex ante and the ex post monitors of the firm helps to prevent capture. The likelihood of both ex ante and ex post inspections is higher under separation than under integration. This provides a rationale for the widespread institutional trend that has led to the separation of ex ante regulation from ex post prosecution. The robustness of this result is investigated in various extensions. Only when collusion is self-enforcing might it be possible that integration dominates separation.
Keywords: Environmental Risk; Ex Ante and Ex Post Investigations; Integration and Separation; Liability and Regulation
JEL Codes: L51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| separation of ex ante and ex post monitors (E61) | reduced likelihood of regulatory capture (G38) |
| separation of ex ante and ex post monitors (E61) | increased probability of ex ante inspections (D82) |
| separation of ex ante and ex post monitors (E61) | increased probability of ex post investigations (L49) |
| integration of monitors (F02) | lower transaction costs (D23) |
| integration of monitors (F02) | smoother bribery opportunities (K42) |
| separation of monitors (Y40) | enhanced overall regulatory effectiveness (L51) |