VOLUNTARY COMPLIANCE AND REGULATORY ENFORCEMENT

Enforcement strategies that encourage "voluntary compliance" can improve regulatory efficiency by reducing unnecessary enforcement and compliance costs associated with legal confrontation between firms and agencies. This article analyzes the enforcement dilemma that causes confrontation and describes a "Tit for Tat" strategy capable of increasing socially beneficial cooperation. The strategy requires agencies to be reasonable toward cooperative firms, vengeful toward cheaters, unrelenting in pursuit of chronic evaders, but conciliatory toward repentant firms. Reforms in this neglected and poorly understood part of the regulatory process could yield considerable social benefits.