Announced vs. surprise inspections with tipping-off. Dechenaux, E. and Samuel, A. European Journal of Political Economy.
Announced vs. surprise inspections with tipping-off [link]Paper  doi  abstract   bibtex   
This paper analyzes a model in which a firm’s compliance with regulation is monitored by a supervisor. The supervisor exerts costly, unobservable effort to raise his inspection intensity, which leads to moral hazard. A non-compliant firm may exert effort in avoidance to reduce the probability of sanction. The regulatory framework is such that inspections may be announced or unannounced. Our analysis derives novel results about the response of monitoring and avoidance to changes in inspection policies, as well as conditions under which a regulator who maximizes compliance prefers unannounced to announced inspections. When the supervisor is corruptible, unannounced inspections are susceptible to a tip-off from the supervisor to the firm in exchange for a bribe. To eliminate bribery, the regulator may reduce the frequency of inspections. However, in an example, we show that eliminating tipping-off may lead to lower compliance unless the supervisor’s wage is raised.
@article{dechenaux_announced_????,
	title = {Announced vs. surprise inspections with tipping-off},
	issn = {0176-2680},
	url = {http://www.sciencedirect.com/science/article/pii/S0176268014000020},
	doi = {10.1016/j.ejpoleco.2014.01.001},
	abstract = {This paper analyzes a model in which a firm’s compliance with regulation is monitored by a supervisor. The supervisor exerts costly, unobservable effort to raise his inspection intensity, which leads to moral hazard. A non-compliant firm may exert effort in avoidance to reduce the probability of sanction. The regulatory framework is such that inspections may be announced or unannounced. Our analysis derives novel results about the response of monitoring and avoidance to changes in inspection policies, as well as conditions under which a regulator who maximizes compliance prefers unannounced to announced inspections. When the supervisor is corruptible, unannounced inspections are susceptible to a tip-off from the supervisor to the firm in exchange for a bribe. To eliminate bribery, the regulator may reduce the frequency of inspections. However, in an example, we show that eliminating tipping-off may lead to lower compliance unless the supervisor’s wage is raised.},
	urldate = {2014-01-12},
	journal = {European Journal of Political Economy},
	author = {Dechenaux, Emmanuel and Samuel, Andrew},
	keywords = {Compliance, Corruption, Regulation, Tip-off, Unannounced inspections},
	file = {ScienceDirect Full Text PDF:files/48063/Dechenaux and Samuel - Announced vs. surprise inspections with tipping-of.pdf:application/pdf;ScienceDirect Snapshot:files/48062/Dechenaux and Samuel - Announced vs. surprise inspections with tipping-of.html:text/html}
}
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