DIFFERENTIATING BETWEEN FIRST AND REPEAT OFFENSES

"I present a model where a regulator monitors compliance with a policy by a population of individuals, some of whom repeatedly prefer to violate the policy, while others only occasionally want to experiment. I show that the regulator can use sanctions, contingent on past violations of the policy, to differentiate between the agents and to improve welfare. Such punishment plans arise frequently in practice. As a result, a regulator prefers investing in enforcement rather than use maximal sanctions. "("JEL "K42, K14, L51) Copyright (c) 2008 Western Economic Association International.