Unexpected Effects of Expected Sanctions

The economic analysis of law enforcement holds that greater expected sanctions lead to compliance. literature on positive and negative incentives rewards sanctions—or carrots sticks—have identical first-order incentive effects. We extend the basic model in three ways. allow agents opt out regulatory regime, we for errors, who vary at least one trait addition their cost show that, following these realistic modifications model, two fundamental conclusions just described do not hold. Greater necessarily compliance; sticks are substitutes also adding taxes subsidies toolkit does expand set achievable outcomes.