Encouraging Tax Compliance With Positive Incentives: A Conceptual Framework and Research Directions*

Drawing on learning and social psychological research, we identify the processes by which positive incentives induce compliance with regulatory laws, using tax as a specific example. We evaluate the likely effects of various positive incentives on four different dimensions of compliance decisions: instrumental consequences, normative considerations, internalized motivation, and allegiance to authority. Linking incentives specifically to compliant behavior invokes a cost/benefit analysis, lowers intrinsic motivation and allegiance to authority, and requires authorities to monitor citizens and to distinguish between compliant and noncompliant behaviors. The alternative is to present the incentives as an attempt by the enforcement authorities to cooperate with the citizens. This method is less likely to invoke cost/benefit calculations; requires less intervention by authorities; and increases intrinsic motivation, consideration of normative issues, and allegiance to authorities. Prior research suggests that respectful treatment and praise may be more effective incentives for inducing long-lasting compliance than are materialistic incentives because people have a strong tendency to reciprocate actions they receive from authorities. Our analysis leads to proposals for program implementation and evaluation and raises some theoretical questions that need additional research.     

Criminal Justice Reform,Monetary Incentives,and Policy Evaluation*

Innovation in criminal justice frequently fails, or is perceived as having failed. In this paper we look at a highly imaginative, quintessential 1980's innovation–the use of financial incentives to encourage prosecutors to process more quickly their oldest cases and their cases involving defendants incarcerated pre-trial. Measured by conventional “bottom line” criteria the incentive scheme can be labeled a failure. But measured both by the limited actual success at least one office achieved, and by the general effectiveness of the incentives as motivators for three out of the four offices studied, a somewhat more positive assessment of the efficacy of incentives can be fashioned.     

Uncertainty and regulatory outcome in the Swedish electricity distribution sector

Regulatory agencies are potentially influenced by market characteristics and underlying incentives and use simplifying decision rules. When decision uncertainty increases, it is hypothesised that these influences become more apparent. This study investigates civil cases initiated by dissatisfied customers in the Swedish electricity distribution market. The purpose is to determine (1) how regulatory decision uncertainty manifests itself and (2) whether multi-echelon regulatory structure has a structural impact on regulatory outcome. The results indicate that the regulator’s decisions exhibit status quo bias and that large customers are privileged compared to small customers. The court distinguishes itself by favouring large utilities.     

The World Trading System, the International Legal System and Multilevel Choice

Abstract:  This article develops a theory of multilevel choice of regulatory jurisdiction based on normative individualism, and suggests how certain features of the World Trade Organization (WTO) might be understood in terms of this theory. The WTO has some capacity for positive integration, as demonstrated in, for example, the harmonised minimum standards for intellectual property protection contained in the TRIPS agreement. Yet the WTO has generally not been used as a site for re-regulation in areas congruent with its de-regulation. However, in a limited way, and in particular contexts, it provides certain incentives for re-regulation at other sites. For example, both the SPS Agreement and the TBT Agreement encourage the formation of harmonised rules. These agreements require Member States to use international standards as a basis for their measures, with important exceptions.     

The Shadows of the Law: Contemporary Approaches to Regulation and the Problem of Regulatory Conflict

Regulatory analyses often assume that compliance is desirable, with literature focusing on strategies to encourage "excellence" in adherence to regulatory goals. Yet, it is not unusual for disparate regulatory goals to exist that are based on competing values of what constitutes the "good society." It is this conflict that forms the substance of this paper. In cases of competing regulatory goals, techniques that encourage exemplary compliance in one area can create incentives to breach regulatory provisions of a competing regime. In such cases, generic regulatory techniques are unable to provide a useful means for resolving regulatory conflict but do allow a political delegation of conflict resolution to the "scientific" strategies of the regulator. In turn, the regulator places responsibility on companies for resolving competing regulatory demands. Successive delegation leads to juridification as well as regulators vying to retain primacy for their regime. This problem is examined through analysis of responsibilities for subcontractor safety under Australian health and safety law and sections of the Australian Trade Practices Act 1974 aimed at protecting competition.     

The schizophrenia of physician extender utilization

The Patient Protection and Affordable Care Act of 2010 provides incentives for healthcare to be delivered by Affordable Care Organizations (ACOs). The public face of many, if not most, ACOs is likely to be the Patient Centered Medical Home (PCMHs), a business structure that evolved from Retail Medical Clinics, which made greater use of physician extenders (PAs). Accordingly, this paper examines the evolution and structure of PCMHs as well as how the PCMH is regulated. As neither legal or market regulatory mechanisms are ideal for policing business structures that employ PAs, this paper concludes that the tort reform most appropriate for PCMHs is the introduction of either no-fault or enterprise liability coverage.     

Economic incentives for the self-regulation of the release of price-sensitive information

Companies, as primary disseminators of information, and financial institutions, as major recipients, have economic incentives to self-regulate the transmission and usage of price-sensitive information. These include increased (lost) reputation costs and adverse share price penalties arising from poor management of information disclosure. The economic motivation for self-regulation is seen as conceptually linked to but distinct from legislative changes. Self-regulation has the strong support of economic efficiency arguments, whereas recent additional new legislative changes do not. This article examines a major corporate and institutional response to the new regulatory climate—to internalize part of the regulatory process during their regular relationship communications. Relationships between the case companies and institutions already exist for transaction purposes. They are used as a convenient and low-cost means to pursue self-regulation and to avoid errors of price-sensitive information release. This self-regulatory process is illustrated using case material. It is clear from the response pattern presented that the development of a self-regulatory framework by the parties has been an iterative one. The corporate and institutional systems that have been evolving seem to be significantly influenced by the regulatory trends. The regulatory changes appear to have played a role in increasing market costs incurred by those companies with poor stock market communication practices. The article ends by arguing that new proposals to change in the formal regulatory system should recognize that further legislation is unlikely to improve the poor prosecution record. Nevertheless, legislative changes can combine with and buttress the self-regulation process to create an effective regulatory system.     

Patents & the progress of personalized medicine: biomarkers research as lens

This article addresses the barriers to personalized medicine, focusing on the burgeoning field of biomarkers research. The author begins by framing intellectual property issues as more than a product of industry incentives and suggests that these issues are deeply entangled with other barriers facing personalized medicine such as regulatory framework deficiencies. The author proposes a set of future research questions to more fully define the barriers to biomarkers research and to uncover which corrective measures may be effective. The author concludes by recommending an integration of regulatory and patent reforms, with a call to action by scholars, scientists, representatives of the biopharmaceutical industry, and policy-makers.     

Waiting for Enron: The Unstable Equilibrium of Auditor Independence Regulation

A primary function of auditor independence regulation is to ensure that any financial incentives auditors may have to approve misleading or inaccurate accounting are outweighed by market and regulatory deterrents to compromising an auditor's independence. This article is an inquiry into the current state of this incentive equilibrium in the United Kingdom: the possible costs and benefits that may be incurred by auditors if they elect to acquiesce to management's demands to accept problematic accounting. It argues that the equilibrium position currently incentivizes a rational auditor to acquiesce. On the one hand, the article demonstrates that the recent evolution of audit firm revenue streams has provided auditors with a substantial incentive to compromise their independence and provided management with credible sanctions to pressurize them to do so. On the other hand, the article shows that regulatory and market costs of acquiescence do not counterbalance the benefits of acquiescence.     

Motivating Environmental Action in a Pluralistic Regulatory Environment: An Experimental Study of Framing,Crowding Out,and Institutional Effects in the Context of Recycling Policies

In designing a recycling policy, the regulator must choose among multiple instruments. Our study seeks to address the linkages between the choice of regulatory instruments and institutional frameworks, people's intrinsic motivation, and various attitudinal measures. We examined the behavioral repercussions of several instruments that are used widely in recycling regulation, using an experimental survey on a representative sample of the Israeli population (N = 1,800 participants). Our findings suggest that the design of recycling policies should be sensitive to the framing effects of varied regulatory instruments and to the interplay between intrinsic and extrinsic motivation on the desirability and efficacy of the law. In particular, we point out the potential regulatory advantage of using deposit schemes over other instruments and of using private organizations as regulatory agents. Drawing on these findings, we discuss the potential value of using differentiated regulatory policies to provide incentives for recycling in societies characterized by broad heterogeneity in levels of intrinsic motivation.     

奥巴马政府监管的行为法经济学分析——“成本收益国家”在“行为时代”的人性化改革

奥巴马政府以行为科学和行为法经济学的成果为科学基础，从完善监管和监管审查，促进国际监管合作，以及减少监管负担三个主要方面进行了政府监管改革。这是对成本收益分析传统的完善和补充，是一种更加符合行为法经济学实证和规范要求的人性化和合理化政府监管模式。     

Food Fraud and the Partnership for a ‘Healthier’ America: A Case Study in State-Corporate Crime

At a moment of heightened public concern over food-related health issues, major corporations in the food industry have found their products and practices under scrutiny. Needing to be understood as socially responsible, these corporations have established partnerships with the state to construct a positive, proactive, and cooperative public image. One major public–private partnership that evolved from former First Lady Michelle Obama’s Let’s Move initiative—the Partnership for a Healthier America—serves as a case study in this paper, which analyzes the consequences and social harms perpetuated by a public health campaign bound by the imperative to maximize profit. By using trusted state actors to deliver accurate but deceptive claims about food companies’ commitment to public health, this public–private partnership actively misleads the public and potentially exacerbates public health challenges, warranting a skeptical revision of how we understand corporate social responsibility and neoliberal governance on issues of health and nutrition. As a form of fraud, these attempts to mislead the public go beyond the actions of public sector individuals or members of corporate boards, but are structurally incentivized by the legal rights, regulatory privileges, and profit-related incentives central to the modern corporate form. While conventional criminological research tends to underemphasize state and corporate harms, we make use of a critical criminological perspective to analyze state-corporate partnerships in the space between food industry practices and public health policy.     

Patching the patchwork: appraising the EU regulatory framework on cyber security breaches

Breaches of security, a.k.a. security and data breaches, are on the rise, one of the reasons being the well-known lack of incentives to secure services and their underlying technologies, such as cloud computing. In this article, I question whether the patchwork of six EU instruments addressing breaches is helping to prevent or mitigate breaches as intended. At a lower level of abstraction, the question concerns appraising the success of each instrument separately. At a higher level of abstraction, since all laws converge on the objective of network and information security – one of the three pillars of the EU cyber security policy – the question is whether the legal ‘patchwork’ is helping to ‘patch’ the underlying insecurity of network and information systems thus contributing to cyber security. To answer the research question, I look at the regulatory framework as a whole, from the perspective of network and information security and consequently I use the expression cyber security breaches. I appraise the regulatory patchwork by using the three goals of notification identified by the European Commission as a benchmark, enriched by policy documents, legal analysis, and academic literature on breaches legislation, and I elaborate my analysis by reasoning on the case of cloud computing. The analysis, which is frustrated by the lack of adequate data, shows that the regulatory framework on cyber security breaches may be failing to provide the necessary level of mutual learning on the functioning of security measures, awareness of both regulatory authorities and the public on how entities fare in protecting data (and the related network and information systems), and enforcing self-improvement of entities dealing with information and services. I conclude with some recommendations addressing the causes, rather than the symptoms, of network and information systems insecurity.     

Incomplete Clearinghouse Mandates

In the 2007–08 financial crisis, over‐the‐counter (OTC) derivatives triggered the collapse of colossal financial institutions. In response, global policy makers instituted clearinghouse mandates. As a result, all standardized OTC derivatives must now use clearinghouses, and global financial market stability now depends upon these institutions. Yet certain underlying legal and regulatory structures threaten to undermine clearinghouse stability, particularly were a significant clearinghouse to become distressed. This article argues that the clearinghouse mandates are incomplete in that they fail to reform these problematic arrangements. As with electric utilities, the lights at the financial market infrastructures known as clearinghouses must always be on. Yet the legal frameworks for handling a distressed clearinghouse, the problem of clearinghouse recovery, and resolution, remain uncertain. This article advances debate on this issue. It argues that recovery, a private market restructuring process, can be conceptualized as a bargaining game dependent upon time‐critical cooperation between a clearinghouse and members. This article uses transaction cost economics to demonstrate, however, that certain underlying legal and regulatory structures could work at cross‐purposes to this necessary cooperation, and actually increase its cost. Based upon this analysis, it proposes reforms designed to ensure that parties’ incentives promote efficient recovery. In the absence of efficient recovery frameworks, the path of a distressed, significant clearinghouse is likely to resemble that of the government‐backed mortgage lenders whose fate more than ten years after their entry into conservatorship remains uncertain. This article aims to help avoid a repeat of this history.     

How liable should an exporter be?: The case of trade in hazardous goods

This paper analyzes liability issues in the context of internationally traded goods like hazardous waste. It focuses on waste disposers of a small open economy that are judgement-proof due to either wealth constraints or regulatory liability limits. In this case, the extension of liability to waste exporters distorts the factor allocation and may reduce disposal care. Hence the optimal extension is partial at most. However, extending liability increases incentives of the waste importing country to hold domestic disposers liable. Interaction through the price system and through contracts that condition payments for disposal services on the occurrence of an accident yield identical outcomes if disposers are judgement-proof.     

Wasting or saving time? How government and opposition parties use time during legislative debates. Evidence from the Italian case

The use of plenary time during legislative debates has consequences for the enhancement of party goals. Hence, parties have different preferences on how legislative time should be managed: while some parties would like time not to be ‘wasted’ on the floor, other parties may instead try to ‘consume’ as much time as possible. Speeches delivered in the plenary signal these preferences. Focusing on plenary debates on legislation, this paper proposes a theory for explaining party speech-making behaviour that takes into consideration parties’ preferences on the use of time and their incentives related to the divide between government and opposition. The theoretical argument also emphasises the role of issue salience and party cohesion, which interact with the incentives faced by government and opposition parties. Hypotheses are tested against data from over 21,000 speeches delivered in the Italian parliament. Results highlight the importance of considering the different incentives faced by government and opposition parties when analysing speech making in parliamentary settings, and suggest some interesting avenues for future enquiry.     

Revisiting the Role of Negotiation and Trivialization in Environmental Law Enforcement

Using an empirical assessment of the use of enforcement undertakings by the Environment Agency and the engagement of the courts with the recently enacted sentencing guidelines for environmental offences, this article argues that the enforcement of environmental law is undergoing significant change. This change manifests itself in an increased reliance on written negotiated agreements in the form of enforcement undertakings by the Enivironment Agency and the willingness of the courts to hand down significant fines in cases against certain types of polluters. These new dynamics suggest that negotiation continues to play an important role in the enforcement of environmental law, albeit in a contractualized form. The application of the sentencing guidelines conversely suggests that environmental offences are no longer trivialized by the courts. Taken together, these emerging dynamics not only create specific incentives between agencies and offenders but also call into question established understandings and perceptions of regulatory enforcement.     

Academic copyright in the publishing game: a contest perspective

As scientists are motivated by readership rather than by royalties, one might doubt that academic copyright is required for stimulating research. Consequently, establishing an open access regime is currently intensively being discussed. We contribute to the literature by using a contest-model in which differently talented researchers compete for limited journals space. The contest perspective adds a rent-seeking motive into the publishing game which questions that private incentives for research are always too low due to the positive externalities of scientific progress. In our model, open access always leads to higher social welfare when incentives are too high. When incentives are too low, then open access is only superior if the benefits from larger readership is sufficiently high.     

The political management of managed care: explaining variations in state health maintenance organization regulations

In the 1990s, strong incentives for managed care organizations to control costs, once regarded as a fortuitous confluence of interests, came to be seen as antithetical to consumers' interests in quality of care. In response to this change in political climate, many states have greatly increased their regulatory control of managed care organizations since the mid-1990s. This activity is surprising in an era when public policy on health care issues is usually described as frozen, gridlocked, and/or stalemated as a result of intense activity on the part of organized interests. We take advantage of the variation in state regulations of health maintenance organizations (HMOs) to discover why some governments are able to address policy problems that are often perceived as intractable in a political if not in a true policy sense. From the history of HMOs, the backlash against managed care, and state responses to that backlash, we first extract a number of hypotheses about state regulatory activity. We then test these hypotheses with data on regulatory adoptions by states during the late 1990s and the early 2000s. Last, we discuss the findings with special attention to the role of politics in health care.     

Determining health care rights from behind a veil of ignorance

Should our society establish positive rights to health care that each citizen could claim, as many health policy analysts believe? Or should it provide only background rules of contract and property law and leave the provision of health care to the free market, as Richard Epstein advocates in Mortal Peril? In this article, Professor Korobkin argues that this question should be addressed from the Rawlsian "veil of ignorance" perspective. That is, the question should be answered by asking what kind of society would individuals agree to form if they had no knowledge of their individual skills or endowments; if they did not know whether they were rich or poor, healthy or sick, weak or strong. Professor Korobkin contends that individuals behind such a veil of ignorance would balance their inherent risk aversion (which favors a safety net of "rights") against the inefficient incentives created by rights regimes that would reduce net social wealth (which favors a free market). Whether they would choose to establish rights to health care or not is ultimately an empirical question that turns on how inefficient any particular right would be. The question thus requires a case-by-case analysis of proposed rights. The article then considers the policy issues of (1) community rating of private health insurance and (2) the mandated provision of emergency medical care. It concludes that in these cases the inefficient incentives created by establishing rights are probably smaller and/or controllable enough to lead individuals behind the veil of ignorance to favor a regime of positive rights.