Political pressure and regulatory control

Conclusions of previous regulatory studies addressing the impact of fines on firm's behavior are contradictory. A simple game theoretic model is developed which uses continuous payoff functions to reconcile these contradictory conclusions. The game suggests changing the fine shifts the reaction functions of both the regulatory agency and the firm. The nature of such shifts are partially caused by political pressure different interest groups place on regulatory agencies. Competing goals within the agency also help explain why such shifts occur.