Does Crime Pay?

A Classroom Demonstration of Monitoring and Enforcement

Does Crime Pay? A Classroom - JSTOR. https://www.jstor.org/stable/20111866.

Introduction
This paper presents a classroom game in which students choose whether or not to comply
with pollution regulations. By changing the level of monitoring and fines for noncompliance
across periods, the game shows students how the probability and severity of enforcement
affects incentives for compliance. The game can be adapted for settings other than
environmental regulation and can be used in a variety of classes including regulation, law and
economics, environmental economics, public economics, or the economics of crime.

Main concepts in the paper

This paper explains how the game is supposed to be played. In this game, firms, which
comprise of students, must comply with environmental standards. Every day businesses must
determine whether or not to follow rules. In the absence of enforcement, noncompliance is
more lucrative than compliance. But the regulator has an enforcement programme.
Comptroller costs must be compared against noncompliance costs. Every day, the
government announces its enforcement approach before the companies decide whether to
comply or not. Following company choices, the indicated plan is executed. A firm is selected
at random and in case found in noncompliance, the firm will be penalised with the fine as
mentioned earlier. This will be done every day and with each day, the fee increases. So
eventually more firms will be found in compliance since no one will want to pay such a high
fee. This will help student consider the behavioural consequences of different enforcement
techniques. Unpredictable conduct provides for a detailed discussion of enforcement in
general and how enforcement techniques might be tweaked to be more successful.

Authors stand in the paper

According to the author, the article presents a classroom game which includes the dynamics
of enforcement, enforcement strategies that take past compliance behaviour into
consideration, and the impact of changing the likelihood of monitoring as well as severity of
enforcement. The game also exposes areas where real behaviour may differ from predictions
made by theoretical models, since students often respond differently to changes in monitoring
probability compared to changes in enforcement intensity. The author believes that as and
when the fine increases, more firms will start complying since no one wants to pay higher
fine. Undercompliance occurs when compliance is profitable, and overcompliance occurs
when noncompliance is profitable. Students respond to a variety of enforcement systems by
deciding whether or not to comply with an expensive rule or face a higher financial penalty.
Furthermore, the dynamic structure of the game encourages students to consider how their
previous experiences influence their compliance behaviour. The simplicity of the basic setup
makes this exercise very easy to adapt for more specialized topics like targeted enforcement,
a fine system that is based on past behaviour, and compliance as a public good.

What I do not agree with

The author has given a very ideal situation with a generalised conclusion that as and when the
penalty increases, so does the compliance rate. However, it is not that easy. Evaluating based
on this is difficult especially because it requires constructing measures of the beliefs of
individuals and regulated businesses. There are a lot of other factors, different situations and
circumstances that need to be taken into account like the types of companies that need to
comply. One simply cannot expect all the companies to be equally compliant. Also, instead
of having to increase the penalty later and giving them a simple choice of noncompliance
being more profitable, they should do their research and impose a heavy penalty in the
beginning itself. They must determine what expected punishment makes it optimal for
companies to comply in a one-shot game. Otherwise, it is a joke and mockery of the system if
no one follows the rules and regulations.

What I agree with

I agree with the extensions and variations mentioned in the paper. Out of all the variations
mentioned, I think we must incorporate Asymmetric Costs as well as Targeted Enforcement
together since it will be the most effective out of all. Instead of ordering all the companies to
equally comply, they must target certain companies and declare the compliance rate
depending on the company. You could, for example, create some organic chemical factories
and some paper manufacturers, with differing pricing for the two sorts of businesses. This not
only demonstrates that not all businesses are equally compliant, but it may also lead to a
conversation about targeting based on qualities that are likely to be linked to compliance
costs. The next step would be to introduce targeted enforcement. Once a few companies have
been found to be noncompliant, inspection to be done for these companies each day and for
the others, one company can be chosen at random to be inspected. This will, one, reduce
noncompliance rates and two, reward the “good” companies for abiding the law and give
them more incentives to follow the law.

My Take away
The game is an effective way of helping the students evaluate for themselves. It makes them
think and understand at the same time. You can simply understand by playing this game that
what factors would contribute to overcompliance and what factors would contribute to
undercompliance. Lower fines will result in undercompliance and higher fine will result in
overcompliance. People are more deterred by the severity of the punishment than by the
probability of punishment. Having being caught once does not always mean that it will result
in compliance unless there is an increase future punishment from the past violations. The
exercise motivates discussion about the relative effectiveness of increasing the probability of
monitoring versus increasing fines for noncompliance. Given the above enforcement system,
which is following the Asymmetric Costs and the Targeted Enforcement, compliance will be
profit-maximizing for the “bad” companies making it optimal for companies to comply in a
one-shot game. Deterrence is influenced by the certainty of punishment as well as the
severity of punishment a person faces. Companies respond to increases in fine size and fine
probability with equal sensitivity and both specific deterrence and corporate culture are
important determinants of compliance behaviour.