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Munich Personal RePEc Archive

The effects of the enforcement strategy.

Suurmond, Guido

Department of Economics, Leiden University

2007

Online at

https://mpra.ub.uni-muenchen.de/21142/

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Compliance to fire safety regulation.

The effects of the enforcement strategy.

Guido Suurmond

Leiden University

Faculty of Law

Department of Economics P.O. Box 9520, 2300 RA Leiden Phone: ++31 71 527 7855 (7825) E-mail: G. Suurmond@law.leidenuniv.nl

Abst r a ct

The conventional economic literature on law enforcement provides no satisfactory explanation for the enforcement policies in the field of environmental regulation, safety regulation and health regulation. In these fields enforcement usually applies administrative law sanctions and is characterized primarily by advice, persuasion and warnings. This is illustrated for the enforcement of fire safety regulation in bars and restaurants by Dutch municipalities. I demonstrate that economic analyses are well able to explain the benefits and need of an enforcement policy of advice, persuasion and warnings. However, it is also true that in the specific field analyzed a more deterrent policy by more severe punishment will most likely improve compliance. As such, the general economic argument of the benefits of deterrence should not be abandoned.

Keywords: (non)compliance, Harrington paradox, compliance strategies, administrative law enforcement

This is a rev ised version of t he paper present ed at t he European Associat ion of Law and Econom ics ( EALE)

24t h Annual Conference at Copenhagen, 13- 15 Sept em ber, 2007. I w ould like t o t hank t he par t icipant s,

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1 . I n t r odu ct ion

The st andard econom ic m odel of law enforcem ent st resses t he im port ance of punishing individuals and firm s in order t o det er t hem from com m it t ing a violat ion.1 I t assum es t hat a pot ent ial violat or behaves rat ionally , so t hat he decides t o com ply wit h a regulat ory st andard if t he ex pect ed penalt y ex ceeds t he cost s of com pliance. This m odel seem s at odds wit h act ual enforcem ent policies, especially in t he field of environm ent al, safet y and healt h regulat ion.

Consider for exam ple t he enforcem ent of fire safet y r egulat ion in bars and r est aur ant s in t he Net her lands. These t ypes of est ablishm ent s should t ak e m easures in or der t o prevent and/ or lim it t he dam age from fir es t o cust om ers. These safet y rules are enforced by m unicipalit ies and t he local Fire Brigades. A m unicipalit y inspect s a bar or rest aurant once or t wice per y ear. These inspect ions are announced, or even an appoint m ent is m ade, and perform ed during t he day or at least not lat e at night when t he est ablishm ent is in full use. I f t he enforcem ent officials det ect a violat ion, t hey do not im pose a sanct ion but provide a r epor t wit h t he failures and announce a re- inspect ion. I f t he propr iet or cont inues t o violat e despit e several re- inspect ions, he receives an official sanct ion. This sanct ion is not a fine, but a form al warning im plying t hat t he propriet or has t o rest ore com pliance ot herw ise he has t o pay a penal sum or his license is ( t em porarily) wit hdrawn. How ever, in pr act ice t hese sanct ions ar e never used.

Such enforcem ent policies are quit e com m on. I n Cont inent al count ries lik e t he Net herlands t he regulat ions addr essed at fir m s are prim arily enforced by so- called ‘adm inist rat iv e enforcem ent ’.2 The quest ion is whet her t he econom ic m odel is applicable t o t hese enforcem ent policies. There are t wo lines of research t hat deal w it h t his issue. First , econom ist s have t r ied t o ex plain w hat has been labeled t he ‘Har ringt on Paradox’3: ( i) t he frequency of inspect ions is

low; ( ii) even if a violat ion is det ect ed, sanct ions are hardly im posed; ( iii) yet , t he level of com pliance seem s t o be pret t y high. This com binat ion of observat ions has inspired a lot of m ost ly t heoret ical r esearch t hat t ries t o explain t he com binat ion of a seem ingly lax enforcem ent t reat m ent w it h surprisingly high com pliance levels.4 By now , an im por t ant quest ion is whet her t he Harr ingt on paradox exist s at all ( Ny borg and Telle, 2006) .

Anot her line of research t hat is m ost ly developed out side of econom ics focuses on t he enforcem ent st yle. I t argues t hat a policy of advise, persuasion and w arnings is able t o achieve higher levels of com pliance t han st rict punishm ent . The enforcem ent st y le is labeled a com pliance st r at egy as opposed t o a det er rence st rat egy of which econom ist s are t hought t o be t he m ain defenders. 5 Under a com pliance st rat egy t he enforcem ent official act s not as a ‘policem an’, but as a ‘consult ant ’, or a ‘r elief w orker ’. Enfor cem ent proceeds according t o an enforcem ent pyram id, in which fines and ot her crim inal sanct ions ar e only im posed if t he individual or firm keeps on violat ing. A det err ence st rat egy ignores t hat m ost people are

1 The ‘convent ional’ econom ic lit er at ur e on law enfor cem ent is sum m ar ized in Polinsky and Shav ell ( 2000) or

Shavell ( 2004, Par t I V) .

2 Because enforcem ent is by adm inist rat iv e bodies like m unicipalit ies. The t er m should not be confused wit h

adm inist rat iv e law and econom ics, which deals w it h t he posit ion of t he governm ent ( t he adm inist rat ion) relat ive t o t hat of court s, t he opt im al lev el of discr et ion et c.

3 For exam ple Heyes ( 2000) , aft er Har r ingt on ( 1988, p. 29) . 4 See Hey es ( 2000) and Nybor g and Telle ( 2006) for an overview .

5 The enfor cem ent pyr am id w as int roduced by Ayr es and Br ait hw ait e ( 1992) . Anot her im por t ant r efer ence is

Haw kins and Thom as ( 1984) , especially t he chapt er by Kagan and Scholz. Com pliance st rat egies ar e furt her int roduced and discussed by Haw kins ( 1984) , Bardach and Kagan ( 1982) and Hut t er ( 1997) .

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willing t o com ply, t hat people m ay be incom pet ent t o com ply and t hat m ost people bet t er com ply under a cooperat ive at t it ude t hat acknowledges t he individual circum st ances.

I n t his paper I w ill analy ze t hat a com pliance st rat egy can be favorable from an econom ic perspect ive t oo. I will exam ine w het her t he econom ic m odel is applicable t o t he field of adm inist rat ive enforcem ent , wher e enforcem ent is pr im arily charact erized by advice, persuasion and warnings. Ther efore I will analyze t he exam ple of t he enforcem ent of fire safet y regulat ion. Based on t his exam ple I show t hat t he econom ic lit erat ure is not only academ ic, but is useful in exam ining act ual enforcem ent problem s, while on t he ot her hand st udying t he enforcem ent policies in pract ice helps t o im prove our underst anding of ( adm inist rat ive) enforcem ent , it s sanct ions and t he corresponding enforcem ent st yle.

This paper is organized as follow s. Fir st , I will describe in m ore det ail t he enforcem ent of fire safet y in t he Net herlands and exam ine it s pr im a- facie cont radict ions w it h t he st andar d econom ic m odel. I n sect ion 3 I m ore t horoughly analyze t he enforcem ent st yle. Based on t his field st udy, I reflect on t he general discussion bet w een det errence and com pliance st rat egies in sect ion 4. I sum m arize t he reasons and condit ions for det er rence or com pliance st r at egies from an econom ic per spect ive. Sect ion 5 concludes.

2 . A de scr ipt ion of t h e e n for ce m e n t of fir e sa fe t y in D u t ch ba r s a n d r e st a u r a n t s

Whoever is int erest ed in t he effect s of adm inist rat ive law enforcem ent , w ould like t o have recour se t o a sound dat abase of com pliance levels, com pliance cost s and ex pect ed penalt ies. Unfort unat ely such infor m at ion is not available in t he Net herlands.6 I n recent years we hav e learned a lot about t he out put of enforcem ent agencies: how m any schools have been visit ed, how m any sanct ions have been im posed, how m any licenses have been w it hdrawn et c. However, t hese do not guarant ee t hat inspect ion and enforcem ent is effect ive, let alone efficient . The agencies hardly provide any inform at ion about t he ( social) consequences of t heir act ions, t he out com e of enforcem ent . How does t he out put affect t he level of com pliance, and – even m ore – how does com pliance affect t he com pliance cost s and t he expect ed dam age?

Because t here are no dat a available on t hese relat ionships, I conduct ed a qualit at ive research of a specific problem at t he local level. I st udied t he enforcem ent of t he fire safet y regulat ion in bars and rest aurant s in t he Net herlands. I visit ed 13 m unicipalit ies and int erview ed t heir enforcem ent officials in or der t o exam ine how t hey enforce t his r egulat ion and what are t he effect s of t heir policy. Let m e short ly describe t his field.7

Bars and rest aurant s

The decision t o st udy bars and rest aurant s is because t his is a relat ively hom ogeneous group of est ablishm ent s, aim ed at serving food or dr ink s t hat are consum ed at t he place it self. Not included are hot els t hat have t o fulfill st ronger r equir em ent s because of t he opport unit y of passing t he night when people are m ore vulner able t o fire. Also snack bars and sm all t ak e

6 Leeuw and Willem sen ( 2006) dem onst rat e t his for nat ional enfor cem ent agencies in The Net herlands. I t is

confir m ed by Algem ene Rek enkam er [ Net herlands Court of Audit ] ( 2005) . Giv en t he scar ce ( em pirical) lit erat ure on adm inist rat iv e law enforcem ent t his is lik ely t o be a general pat t er n for at least Cont inent al count ries. Em pirical r esear ch t o t he effect s of regulat ory enforcem ent is usually about t he use of fines ( m ost oft en in t he US or UK) . Not able except ions ar e Telle ( 2004) and Ecker t ( 2004) .

7 A m or e ex t ensive descr ipt ion w ill appear in m y t hesis ( planned for publicat ion in 2008) . Mor eover it is

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aw ay rest aurant s are ex cluded t hat do not have t o t ake precaut ions t o help people escape in case of fire, because t here are only a few people present . Moreover, usually t he propriet or of a bar or rest aurant j ust exploit s one est ablishm ent , so t hat t hese firm s are charact erized by a rat her sim ple or ganizat ion wit h few hierar chy levels. The propriet or him self runs t he est ablishm ent , direct s his personnel, and receiv es t he profit s of t he business. There are a few lar ger chains, not ably in fast foodr est aurant s ( e.g. McDonald’s) wher e t her e m ight be conflict s bet w een organizat ional and m anagerial goals.

The r egulat ory set t ing

Of cour se, a fire r esult s in financial dam age t o t he est ablishm ent . Therefore t he propr iet or has an incent ive t o pr event fires. The regulat ion is prim arily aim ed at prevent ing and/ or lim it ing t he dam age from fires t o cust om er s.8 Bars, rest aur ant s and sim ilar est ablishm ent s should t ake m easures like ( 1) keeping escape rout es and em ergency exit s free from obst acles ( like beer crat es or t ables) , ( 2) decorat ing t he est ablishm ent only wit h im pregnat ed decorat ions, ( 3) guarant eeing t hat t he escape- rout e indicat ions alw ays burn during use and yearly checking t he escape- rout e indicat ion and t he em ergency light ing, ( 4) annual cer t ificat ion of t he fire ext inguishers, ( 5) being careful wit h candle light s, ash- t ray s et c., and ( 6) not allowing ent rance t o m or e visit or s t han t he m axim um st ipulat ed in t he license. Municipalit ies and t he local Fire Br igades enfor ce t hese t ypes of regulat ions. They inspect t he est ablishm ent regularly , bot h periodically and during event s or feast s. Furt herm ore, t hey can decide t o inspect when t hey receive a com plaint or report about an est ablishm ent .

Sanct ioning is pr im ar ily by w hat is called ‘adm inist rat iv e enforcem ent ’. Under adm inist rat ive enforcem ent t he College of Mayor and Alderm en can charge t he propriet or t o rest ore com pliance ot herw ise he has t o pay a penal sum or t he m unicipalit y rest ores com pliance at his expense ( adm inist r at ive coercion) . I f t hese do not work , t he m unicipalit y can wit hdraw t he propriet or ’s license, which in fact m eans t hat he has t o close his business. Offences can also be enforced t hrough cr im inal law by t he Public Pr osecut or , especially w hen t he offences creat e clear and im m ediat e danger. The m axim um sanct ion is a fine of 4500 euros or four m ont hs im pr isonm ent . Usually fines of about 250 euros are m ore realist ic.

Act ual enforcem ent policies

I n pract ice, m unicipalit ies inspect m ost bar s and rest aurant s once a year. Bars and som e rest aurant s in t he cent re of t he cit y oft en face an addit ional inspect ion during event s or feast periods. These inspect ions are announced, or even an appoint m ent is m ade, and perform ed dur ing t he day or at least not lat e at night when t he est ablishm ent is in full use. I f t he enforcem ent officials det ect a violat ion, t hey provide a let t er in which t he failures ar e report ed and inst ruct t he propr iet or t o rest ore com pliance befor e som e deadline ( usually 6 t o 8 weeks) . I n addit ion, t hey announce a re- inspect ion aft er t his deadline. When at r e- inspect ion com pliance is not rest or ed, t hey eit her choose anot her re- inspect ion or give t he propriet or a form al w arning. Wit h t his warning t hey t hr eat en t o im pose a penal sum or a ( t em porary) w it hdraw al of t he license. How ev er, t hese sanct ions are never really execut ed. The cooperat ive propriet ors rest ore com pliance aft er one or som et im es t w o inspect ions. The unwilling pr opr iet or s, est im at ed at 10 t o 20 per cent of t he t ot al num ber of propr iet or s, rest or e com pliance at t he lat est aft er a form al w arning. Fines or ot her punit ive sanct ions are not used.

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Municipalit ies t hem selves are not allow ed t o use t hem . Police depart m ent s as well as Public Prosecut ors do not m ake t im e for t he enforcem ent of t hese regulat ions.

I s t here a Harringt on paradox?

On first view, t he descript ion above confirm s t he exist ence of t he Harringt on paradox: despit e sm all ex pect ed sanct ions, at least no im m ediat e punishm ent , enforcem ent officials ar e in general sat isfied about t he level of com pliance. Howev er, t here is a difference bet ween serious and m inor v iolat ions. For violat ions t hat creat e im m ediat e and ser ious danger t o cust om ers t he expect ed sanct ion is in fact rat her high. Serious non- com pliance will generally not rem ain unnot iced for a very long t im e. Alt hough visit ors are not afraid of insufficient pr ecaut ions in general, t hey w ill be concerned about serious t hreat s t o life and body, at least som eone will. Ot her m unicipal depart m ent s t hat inspect on for exam ple hy giene, serving liquor , public or der et c., ar e not able t o not ice sm all violat ions, but will not ice and r eport severe violat ions or a broad non- com pliance record on all regulat ions. Finally, a propriet or t hat has com m it t ed serious violat ions will be inspect ed m ore oft en and at least m ore t horoughly and m or e st rict ly .

For serious violat ions crim inal prosecut ion is possible. Moreover, t he m unicipalit y is able t o close t he est ablishm ent unt il t he violat ion has ended. The use of t hese sanct ions is credible. I f t he fir e safet y depar t m ent can show t hat t her e is real danger, t he m unicipalit y does not want t o r isk t o ignore it s r esponsibilit y and t o be blam ed for inert ia if som et hing happens. The t hreat of t hese sanct ions seem s sufficient ly high relat ive t o t he cost s of com pliance, so t hat alm ost all propriet ors com ply. As a consequence t he real im posit ion of t hese sanct ions is hardly observed. Only one of t he t hirt een visit ed m unicipalit ies repor t s one such a sit uat ion over t he past years.

For m inor violat ions t he st ory is different . These are not t hreat ened w it h crim inal prosecut ion or im m ediat e closur e, but wit h a warning t o rest ore com pliance. I f t he propriet or adequat ely responds t o t his w arning, no furt her act ion will be t aken. I f t he propriet or ignores t he war ning, t he t hreat of sanct ions becom es increasingly m ore st rict . I n t he end, t he t hr eat of a legal procedure and of form al repair sanct ions is sufficient t o enforce com pliance, even for t he uncooperat iv e propriet ors. The financial consequences of t hese sanct ions can r ise quit e high. Also t he t im e and circus around ( re- ) inspect ions is expensive for propriet or s. I n fact , t he policy is a variant of t he st at e- dependent enforcem ent policy t hat was proposed by Harr ingt on ( 1988) and ot hers.9 I n first inst ance violat ors are not punished, but m oved t o a t arget gr oup in which t hey are m or e closely m onit ored by re- inspect ions, unt il t hey com ply. As a consequence, m inor violat ions ar e very oft en det ect ed. The enfor cem ent officials repor t t hat t her e is always som et hing wrong. I nspect ions in which t he repor t cont ains no failures at all ar e less t han 10 percent . I n m ore t han 50 percent of t he cases, t he enforcem ent officials announce inspect ion. Apparent ly in t hese cases t her e are enough violat ions t o w arrant a re-inspect ion.

So, t he level of com pliance is not unexpect edly high r elat ive t o t he expect ed sanct ion. Enforcem ent officials do find m any m inor v iolat ions, because propriet ors are not punished, but only warned t hat in t he fut ure sanct ions m ight follow . The only im port ant point is t hat t hey should not willingly and deliberat ely cr eat e a fire dangerous sit uat ion. Propriet ors are det erred from t hese violat ions by sufficient ly high sanct ion. This pat t ern fit s t he descript ion of Nybor g and Telle ( 2006) for com pliance wit h environm ent al regulat ion in Norway. They conclude t hat

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“ [ T] he claim s t hat firm s com ply w it h environm ent al regulat ions t o a surprisingly high degr ee m ust be regarded as a yet unconfirm ed m yt h, rat her t han as an est ablished fact ” ( p.14) .

3 . Th e opt im a l e n for ce m e n t st yle for e n for cin g fir e sa fe t y in ba r s a n d r e st a u r a n t s

Such a policy of incr easingly st rict enfor cem ent can be an efficient st rat egy t o det er offences, given t he lim it ed enforcem ent resources and available sanct ions. But t he enforcem ent policies and officials do not seem t o be concerned w it h det er rence at all, but inspect t o explain and convince of t he im port ance of fire safet y . The m ain puzzle t o t he econom ic m odel is not t hat t he level of com pliance does not correspond t o t he expect ed sanct ion, but why enforcem ent officials choose an enforcem ent policy t hat is different from t he econom ic m odel of st rict enforcem ent of offences. Enforcem ent officials defend t he policy by arguing t hat advice, per suasion and warnings ar e m ore effect ive t han dir ect punishm ent . They st art w it h a cooperat ive at t it ude, wit h no int ent ion t o im m ediat ely prosecut e an offence. I n t heir own w ords t hey argue t hat t hey apply a com pliance st r at egy inst ead of a det errence st rat egy. They m ake t he follow ing claim s t hat will be discussed subsequent ly:

1. Most propriet ors are insufficient ly aware of t he regulat ion, of com pliance m et hods and of ( t he im por t ance of) fir e safet y. I nspect ion is needed t o explain t o t he propriet or his failures and t he danger of non- com pliance. Enforcem ent is charact erized by advice.

2. Propriet ors can not alw ays help t hat t hey are in non- com pliance. I nspect ion is aim ed at rest oring com pliance and t hereby fire safet y.

3. Most propriet or s are w illing t o com ply. Therefore t here should be no w it ch- hunt on non-com pliance. I nspect ion is needed t o persuade t he propriet or t hat non-com pliance is socially and m orally desirable.

4. The problem wit h im posing sanct ions is t hat m any and st rict legal requirem ent s have t o be sat isfied, w hich cost s a lot of t im e and effort . I nspect ors achieve m or e and sooner com pliance by explanat ion and cooperat ion.

5. As long as t he propriet or shows t o be cooperat ive, t he enforcem ent officials ar e cooperat ive t oo. But if t he propriet or shows t hat he has no int ent ion t o com ply, t hey st ar t a st rict , det errent enforcem ent st rat egy . Som e say t hat t hey do not prosecut e every offence. The pr im ary quest ion is: is it fire proof in t his est ablishm ent ? Ot her s disagr ee and regar d t he legal requirem ent s as t he m inim um t hat has t o be sat isfied.

6. Fire safet y is t he own responsibilit y of t he propriet or. I nspect ion is only a random indicat ion t o st im ulat e propriet ors t o t ake t his responsibilit y .

3 .1 I n for m a t ion a n d a dvice – n on - com plia n ce by ign or a n ce

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The t heoret ical defense

I f a propriet or is insufficient ly inform ed about t he relevant cost s and benefit s, he is not able t o adequat ely choose t he level of com pliance. Firm s face t w o t ypes of uncert aint y ( Velj anovski, 1984) . Fir st , t here is uncert aint y concerning t he law . Given t he num ber of ( det ailed) st andar ds, firm s will oft en have an incom plet e percept ion of law and t heir obligat ions and of t he ( expect ed) sanct ions. Secondly, t here is uncert aint y concer ning t he least - cost m et hod of com pliance. Sm all firm s in part icular do not necessarily possess t he expert ise on t he best com pliance t echniques.10

I n general, im posing adequat e sanct ions for non- com pliance provides adequat e incent ives t o obt ain efficient levels of inform at ion.11 However , under som e cir cum st ances t his incent ive is

inefficient . Fir st , t here m ight be econom ies of scale in inform at ion gat her ing, if infor m at ion is quit e ex pert , t echnically com plicat ed inform at ion, as applies t o fir e safet y regulat ion. I t is not a nat ural by - product of exploit ing a bar or rest aurant . I f t he propr iet or underest im at es t he probabilit y of a fire, he will undercom ply if he is sanct ioned for t he occurrence of a fire. I f t he propriet or does not know which st andards apply, because t hey are t oo num erous or t oo vaguely form ulat ed, he w ill choose eit her excessive or t oo lit t le precaut ions. For exam ple, t he fire safet y r egulat ion cont ains requirem ent s about t he m axim um num ber of seconds before em er gency light ing should burn in case of a power failure. Propr iet or s can not be expect ed t o know t he r egulat ion in such det ail.

Secondly and in addit ion, it m ay be inefficient if every propriet or incurs t he cost s of fully acquaint ing it self w it h t he law and t he least - cost m et hod of com pliance. I f t he cost s of public inspect ions are sm all relat ive t o t hose of self- audit s by firm s, social cost s will be lower when local fir efight er s, who nat urally possess t his inform at ion as par t of t heir j ob, visit bar s and rest aurant s and share t heir inform at ion wit h t he pr opriet ors ( Velj anovski, 1984; Friesen, 2006) .

Evaluat ing t he argum ent

That pr opriet or s do not nat ur ally possess inform at ion about expect ed fir e dam age, is not a sufficient ar gum ent in favor of a lax enfor cem ent t reat m ent . The problem of insufficient inform at ion m ight be solved by enforcing in an ‘earlier’ st age ( Shavell, 1993) . I f propriet or s are not able t o predict t he expect ed dam age ( and t hereby sanct ions) , t he solut ion can be t o choose act - based enforcem ent on t he level of precaut ions t o pr event dam age. This is pr ecisely what is observed in t he field of fire safet y in bars and rest aur ant s. Act - based enfor cem ent only requires t hat t he propriet or is aw are of t he act - based st andar ds and of t he sanct ions t hat m ight follow .

I t is argued t hat pr opriet or s can not be expect ed t o know t he act - based regulat ion in det ail. Act ually, t he rules are not t hat difficult . The det ailed rules about seconds and m inut es are capt ured in ot her rules t hat are quit e easy t o rem em ber . For exam ple, yearly r eplacing t he lam ps in t he escape- rout e indicat ion, yearly checking t he em er gency light ing and yearly re-cer t ificat ion of t he fir e ext inguishers, guar ant ees t hat t he propriet or sat isfies t he det ailed requirem ent s on m inut es and seconds. Even I am able t o sum m arize t he regulat ions in a paper for ( I assum e) absolut ely laym en in t his field. The m aj or rules sum m arized in sect ion 2 are not difficult t o rem em ber and it is clear how propr iet or s can com ply wit h t hem . I n fact ,

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m ost fire depar t m ent s have a brochure t hat quit e sim ply sum m arizes t he fire safet y rules. There is no reason why public inspect ion is needed on t op of t his t y pe of general inform at ion cam paigns. Moreover , it is not clear why advice should be a cont inued obj ect ive of inspect ions. There is no fast t echnological or inst it ut ional change so t hat inform at ion is out dat ed wit hin a year. Enforcem ent m ight cont ain t wo st ages. I n t he first st age, for exam ple during t he grant ing of t he fire safet y license, t he propriet or is inform ed about t he relevant r egulat ion. Aft er t hat , a det err ence st r at egy can be used in which offences are adequat ely sanct ioned.

The ar gum ent in favor of advice is usually sust ained by refer ring t o t he fact t hat inspect ors do find m any violat ions dur ing inspect ions. Many inspect ors have t he im pr ession t hat t he propriet ors do not know or sim ply do not observ e t heir violat ions, like placing a t able in front of an em ergency exit . How ever, I j udge t hat t his t ype of behavior is prim arily t he r esult of a relaxed enforcem ent t r eat m ent . Pr opriet ors have no incent ive t o infor m t hem selves about t heir com pliance st at us. When a st r ict punishm ent policy w ould be adopt ed, t he blocking of em er gency exit s would soon be over. Propr iet or s would cer t ainly be aware of it .

3 .2 Re m e dia t ion – n on - com plia n ce by a ccide n t

Anot her claim is t hat propriet ors can not always help t hat t hey are in non- com pliance. Failure t o be in com pliance is not alw ays a fault of t he propriet or . Non- com pliance is t he result of defect s of t echnical devices, like t he sudden br eak dow n of a lam p of t he escape- rout e indicat ion. I t is ar gued t o be ineffect ive, unfair or disproport ionat e t o im m ediat ely punish such violat ions ( an exaggerat ed ‘wit ch hunt ’) . I nspect ions are aim ed at rest oring com pliance and t hereby fire safet y.

The t heoret ical defense

For social regulat ion of firm s ( non) com pliance is generally ‘a cont inuing st at e of affairs’ ( Velj anovski, 1984) . The enforcem ent aut horit y should t r y t o reduce t he t im e spent in violat ion ( Nadeau, 1997) . This r et urn t o com pliance is labeled r em ediat ion. For fire safet y regulat ion rem ediat ion especially im plies r epair of t echnical devices t hat have broken down.12

As ex plained by Liver nois and McKenna ( 1999)13, if offences occur accident ally, t he opt im al enforcem ent policy m ay be t o provide t he propriet or a warning. First he is allowed t o rest or e com pliance. Only if he fails t o be in com pliance before som e next period, he is sanct ioned. This occurs when an inspect or who det ect s a violat ion, issues t he propriet or t o repair t he inst allat ion and be in com pliance in a period of 6 t o 8 w eek s.14

Evaluat ing t he argum ent

How ever, upon furt her exam inat ion offences are not ‘accident al’. The probabilit y of t echnical failures is t o a large part under cont rol of t he pr opriet or . The st andards ar e pr ecisely aim ed at inducing t he propriet or t o t ake sufficient care so t hat t echnical failures in t he equipm ent are reduced t o a m inim um . For exam ple, yearly replacing t he lam ps in t he

12 The argum ent can also be applied t o cleaning- up dam age from non- com pliance. Here, clean- up is less

relevant and not explicit ly discussed.

13 See also Malik ( 1993) and Fr iesen ( 2006) .

14 The only differ ence is t hat Liver nois and McKenna ( 1999) assum e t hat fir m s self- report t heir violat ions,

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rout e indicat ions should pr event t hat t hey suddenly break down. Moreover, t he enforcem ent officials are able t o sanct ion t he fact t hat t he propriet or fails t o im m ediat ely replace m alfunct ioning escape- r out e indicat ions ( I nnes, 1999) . The level of repair is quit e well observable by t he fire safet y depart m ent s, even m ore since propriet ors have t o regist er t he repairing t hey have done t o inst allat ions. The policy of Liver nois and McKenna ( 1999) is only efficient if t he t arget com pliance level is less t han full com pliance. Here it is desirable t hat a device is im m ediat ely repaired. The curr ent policy only allows t he propr iet or s t o delay com pliance. A det er rence st rat egy t hat im poses sanct ions dependent on t he level of repair , w ill det er t he underinvest m ent in prevent ing t echnical failures.

3 .3 Pe r su a sion – v olu n t a r y com plia n ce

The enfor cem ent officials argue t hat m ost propr iet or s are w illing t o com ply. Persuading t he propriet or s t o com ply, is m ore effect ive t han punishing ever y violat ion. The lat t er w ill br eak down t heir cooperat ion. Enforcem ent is m uch easier if it builds on t his w illingness t o com ply. Therefore enforcem ent is not aim ed at punishing non- com pliance, but at st im ulat ing volunt ar y com pliance. Enforcem ent officials t ry t o per suade t he propriet or t hat com pliance is socially and m orally desirable. Propriet or s are t aught how t hey behave as good and responsible cit izens. Again t his r equires t hat enforcem ent officials t ake m uch t im e for inspect ion and do m ake an appoint m ent .

The t heoret ical defense

Propr iet or s not only consider t he direct cost s of com pliance ( in t im e, effort and m oney) and t he expect ed form al sanct ion by t he gover nm ent , but also ot her , indirect com

pliance-relat ed benefit s and cost s.15 First , a propriet or m ay choose t o com ply because of inform al

sanct ions, i.e. because he fear s t hat ot her s, like cust om ers, neighbor s or colleagues, w ill disapprove his non- com plying behavior. Secondly, t here m ay be an int rinsic m ot ivat ion ( or willingness) t o com ply, because t he propriet or feels uncom fort able by v iolat ing t he norm . A propriet or t hat subscribes a norm , feels regret and guilt when he violat es it . Or a propriet or m ay feel t he int rinsic m ot ivat ion not t o hur t his cust om ers. These indirect cost s m ay depend on t he decision of ot her propriet or s. The cult ure in t he cat ering indust ry det erm ines how violat ion and com pliance are perceived.

The exist ence of int r insic m ot ivat ion t o com ply j ust ifies bot h a m ore det errent and a m or e com pliant enforcem ent st rat egy. I f enforcem ent is weak or becom es weak, propriet ors m ight lose t heir belief in t he norm and no longer subscr ibe t o it , especially if t hey observe t hat ot hers can violat e t he norm unhindered. Enforcem ent has t o be st r ict enough so t hat propriet ors keep on believing t hat t he norm is act ually im port ant and should not be violat ed.16

On t he ot her hand, st rict enforcem ent can also be count erproduct iv e. I m m ediat e punishm ent of every even m inor violat ion m ight induce propriet or s t o believe t hat t hey only have t o com ply because of t he sanct ion for violat ion. Sanct ions m ight cr owd out t he int r insic m ot ivat ion t o com ply and/ or t he sanct ion m ay be regar ded as a price t he propr iet or can pay t o

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buy non- com pliance.17 Therefore it m ight be bet t er t o forgo a st rict enforcem ent policy of

im m ediat e punishm ent and inst ead choose a policy of warnings, negot iat ion and cooperat ion.

Evaluat ing t he argum ent

The influence of inform al sanct ions in fire safet y is very lim it ed. Disapprov al of propriet or s’ behavior by cust om ers, neighbor s or colleagues is pract ically absent , unless it act ually result s in a ( great ) disast er . Cust om ers lack t he inform at ion t o m ake t heir consum pt ion dependent on t he level of com pliance. Only t he reput at ion wit h t he m unicipalit y is som ewhat im port ant because t he m unicipalit y is less ready t o help a non- com pliant propriet or if he needs a favor.

I t is likely t hat t he int rinsic m ot ivat ion t o com ply is of m or e r elevance, alt hough t his is m ore a claim of enforcem ent officials and general com m on sense, t han an evidence- based fact . Anyhow , it does not provide sufficient ly indicat ions of how t he enforcem ent policy should look like. As discussed above, int r insic m ot ivat ion t o com ply requir es a balance of a com pliance and a det errence st rat egy. I t seem s t hat in t he curr ent sit uat ion where violat ions are t reat ed m ildly, t he enforcem ent policy signals t hat v iolat ion does do relat ively lit t le harm . This st im ulat es a cult ur e in which non- com pliance is not r egar ded as a problem . The lack of lar ge norm subscript ion and t hereby feelings of guilt and regr et quest ions w het her propriet or s really have an int r insic m ot ivat ion t o com ply . To earlier induce com pliance, t he balance should be shift ed t owards a m ore det er r ent st r at egy. This will t each t he propriet or s t hat t he regulat ion should really be t aken seriously. Of cour se, t he enforcem ent policy should r eckon wit h t he possibilit y of crow ding out of m ot ivat ion. This could be solved by first providing a propriet or a war ning, but by st rict ly enforcing t he regulat ion aft er t his war ning. Moreover, if sanct ions can be m ade high enough, t he problem of crowding out of int rinsic m ot iv at ion is of no int erest ( Lin and Yang, 2006) . I f t he expect ed form al sanct ion does exceed t he direct cost s of com pliance, t he propriet or will alw ays com ply irrespect ive of it s m oral concerns.

I rrespect ive of t he precise enforcem ent st yle, it is unclear how inspect ion does and should creat e and shape norm s. Does inspect ion direct ly creat e norm s or does it creat e norm s by increasing t he proport ion of com plying propriet ors? Should inspect ions be t arget ed on com plying firm s, because t hey have t o be confir m ed in t heir belief in t he norm s, or on non-com plying firm s, because punishm ent leads t o guilt and r egret ? And what is t he opt im al num ber of inspect ions for norm for m at ion? Why do m oral int ent ions t o com ply not survive if public inspect ions are r educed? The case of fire safet y in horeca est ablishm ent s does not answ er t hese quest ions. Nor does t he lit erat ure provide any furt her considerat ion of t hese issues.

3 .4 I n for m a l e n for ce m e n t – t ole r a t e d n on - com plia n ce

A claim t hat can be heard from alm ost all enfor cem ent officials is t hat im posing sanct ions is com plicat ed. I t cost s a lot of t im e, effort and m oney. The legal r equirem ent s t hat have t o be fulfilled are st rict and high. An official achieves m ore and sooner com pliance by cooperat ion. A det errence st rat egy is ineffect ive because it carries t he t hreat t hat t he w hole budget is spent on expensive legal procedures wit hout im proving fire safet y. Therefore t he enforcem ent

17 I t is well- know n t hat ext r insic rewards m ight crowd out int rinsic rewards. Recent ly t he argum ent has been

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officials st ar t wit h infor m al not ificat ions. Only if it is r eally necessary because t he propriet or rem ains unr esponsive, t he m unicipalit y will st art an official enforcem ent procedure.

The t heoret ical defense

I f a sanct ion is im posed, t he propriet or can appeal t he m unicipalit y’s decision in an adm inist rat ive cour t . The propriet or m ight cont est a decision successfully by quest ioning t he fact s, t he st andard or t he appropriat e sanct ion ( Kham bu, 1989; Malik, 1990; Hey es, 1994) . The higher t he sanct ion, t he m ore possibilit ies t he firm will use t o escape sanct ions. Therefor e an increase in t he expect ed sanct ion or an increase in t he st andard, can have an adver se effect on t he level of com pliance. This effect is even st ronger when legal procedures are cost ly for t he enforcem ent aut horit y, because t he t im e spent on t hese procedures can not be spent on det ect ing violat ions. I n response t he enforcem ent aut hor it y m ight be bet t er off by enforcing lower ed, infor m al st andar ds ( Kham bu, 1989) and/ or by fir st issuing a warning ( Nybor g and Telle, 2004; Fenn and Velj anovski, 1988) .

Anot her problem is t hat because sanct ioning is expensive, t he t hr eat of sanct ions is incredible ( Boadway et al., 1995; Bak er and Miceli, 2005) . Therefore, at t he suprem e m om ent , t he m unicipalit y m ight be m or e int erest ed in m inim izing current enforcem ent cost s t han in det er ring fut ure non- com pliance. I f t he t hreat of a sanct ion is not cr edible, propr iet or s know t hat t hey can get aw ay w it h non- com pliance. Of cour se, unwillingness t o sanct ion m ight also be t he result of a discrepancy bet w een public int er est s and privat e int erest s of enforcem ent officials.

Evaluat ing t he argum ent

That enfor cem ent officials ar e quit e afraid t hat t heir decisions do not w it hst and t he court ’s review , is especially a problem of percept ion. Several st udies have shown t hat t here is no reason for m unicipalit ies t o be afraid t hat j udges reverse t heir decisions because of form al, procedural errors. I n som e cases t he court even sust ained t he decision despit e form al failures by t he m unicipalit y.18 The fear for j udicial review is unfounded as long as m unicipalit ies ‘j ust ’ do t heir j ob. The fear seem s t o st em from a lack of j udicial expert ise in fire safet y depar t m ent s. Most officials indicat e t hat t hey w ould appr eciat e a bet t er back- up fr om legal depart m ent s or even an ow n law yer em ployed.

Moreover , it is har d t o t hink up what m ight be cont est ed by t he propr iet ors. I n general t he st andar ds are quit e clear . I f m unicipalit ies have grant ed propr iet ors t im e t o rest or e com pliance, t hey are ent it led t o im pose sanct ions. The fact s will also rem ain lar gely undisput ed. The only violat ion t hat is difficult t o est ablish is t he num ber of visit ors as it is difficult t o count t he num ber of present people in a crow ded bar . But generally , challenging t he sanct ion t hat is im posed is of no use.

That does not deny t hat im posing sanct ions requires t im e and effort and t hat t he t hreat of a sanct ion m ight t herefore be incredible. For exam ple, enforcing t he num ber of visit ors is problem at ic because it can lead t o problem s of public or der when people are sent aw ay from a bar on t he st r eet s. Municipalit ies are unwilling t o im pose sanct ions if t he cost s are not in proport ion t o t he offence, for exam ple w hen j ust one escape- rout e indicat ion does not burn. The College of Mayor and Alderm an will oft en give prior it y t o ot her , m ore severe, cases, like an environm ent al or building offence. The im posit ion of a sanct ion is oft en execut ed by a

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differ ent depar t m ent ( t he Legal or Building Depart m ent ) . I f t he fir e safet y depar t m ent finally want s t o im pose a sanct ion, t he file st art s at t he bot t om of t he st ack of t he ot her depart m ent and possibly never r eaches t he t op. Mor eover , t here ar e som e indicat ions t hat sanct ioning is not always in t he pr ivat e int erest of t he enforcem ent officials, like t he som et im es poor cooperat ion bet w een different m unicipal depart m ent s, t he dislike of t rouble w it h a propriet or or ot her m unicipal depart m ent s and t he fact t hat m any inspect or s pr efer t o spend t im e on advice rat her t han on sending ( legal) let t ers. Especially , m ost fire safet y depar t m ent s show t o have m ore int er est in gr ant ing licenses ( for which fees ar e collect ed) t han in enfor cing t hese licenses.

I f propriet ors know t hat for any reason t he enforcem ent officials m ay post pone or even refrain from t he use of sanct ions, t hey m ight choose t o cont inue t o non- com ply as is lar gely observed. Yet t his does not m ean t hat a com pliance st rat egy is desirable. On t he cont rary , social w elfare will be im proved if t he enforcem ent officials are forced t o pursue a det errence st r at egy of st rict ly im posing sanct ions on every violat ion.

3 .5 Coope r a t ive e n for ce m e n t – fle x ible com plia n ce

The enforcem ent officials say t hat enforcem ent has t o be som ew hat flexible, alt hough t here are different opinions on w hat t his flexibilit y should look like. Som e argue t hat t he pr im ary obj ect ive is not com pliance, but fire safet y. They do not invest igat e whet her every single requirem ent is precisely obeyed, but ask ( t hem selv es and t he propr iet or) : is it fireproof in t his bar or rest aurant ? They negot iat e about t he necessary pr ecaut ions t o rest ore com pliance, provided t hat t he fir e safet y is guarant eed. Ot her s ar gue t hat t here should be no com prom ise on com pliance wit h t he r egulat ion, as t his is already a m inim um . But t here is flexibilit y in t he possibilit ies t o r est or e com pliance. They do negot iat e wit h t he propriet or about t he t im e before he rest ores com pliance, and whet her or not t he propr iet or will benefit fr om precaut ions beyond com pliance.

The t heoret ical defense

I f all pot ent ially harm ful act ions are unam biguously st ipulat ed in t he law, t he r egulat ion can be enforced t o t he let t er. A det errence st rat egy wit h a sufficient ly high expect ed sanct ion will im plem ent full com pliance. How ever, in general law is inher ent ly incom plet e ( Pist or and Xu, 2003) . Because open- ended norm s are used, it is not unam biguously clear which act ions will act ually be punished. I n response, law can t r y t o be highly specific, but t he lawm aker w ill

be unable t o capt ure all relevant act ions.19 As a consequence, law is bot h under- and

overinclusiv e ( Velj anovski, 1984) . This problem m ight be over com e by grant ing t he enforcem ent officials sufficient discret ion t o specify t he law for individual firm s and part icular sit uat ions, in licenses and/ or dur ing inspect ions ( Pist or and Xu, 2003) .

However, in general, enforcem ent officials have insufficient inform at ion t o det erm ine t he first - best level of pr ecaut ions. Usually t here is t w o- sided uncert aint y ( Ricket t s and Peacock , 1996) . Enfor cem ent officials have a bet t er know ledge of t he applicable st andards t han firm s. But firm s have a bet t er knowledge about t heir pr oduct ion pr ocess, which gover ns t he det ailed

19 This is differ ent from t he uncer t aint y descr ibed before t hat propriet ors m ight be ignorant about t he law or

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applicat ion of regulat ions and w hich det erm ines t he cost s and possibilit ies t o achieve com pliance. I n such a sit uat ion bot h t he enforcem ent aut horit y and t he firm m ay benefit if t hey behav e m ore cooperat iv ely, in t w o w ays.

Ricket t s and Peacock ( 1996) ar gue t hat bot h benefit if t hey rev eal t heir privat e inform at ion. I f firm s rev eal t heir inform at ion, t his allows t he enforcem ent aut horit y t o enforce t he socially opt im al level of precaut ions. The firm benefit s if it im plem ent s t he required pr ecaut ions, because com pliance wit h t his ( adj ust ed) st andar d w ill relieve it from penalt ies. This allows t he enforcem ent aut horit y t o bargain higher pr ecaut ions, w hich is beneficial if t he law is under inclusive.

Scholz ( 1991) ar gues t hat bot h benefit from being flexible. The enforcem ent officials overlook m inor t echnical violat ions ( due t o overinclusion) in recognit ion of t he firm ’s ext ralegal safet y effor t s t o r educe great er hazards not direct ly addr essed in t he regulat ions ( due t o underinclusion) . The fir m t hat chooses flexible com pliance, can t ackle it s w or st healt h and safet y hazards w it h t he m ost efficient m et hods available rat her t han spending m oney t o pr ecisely com ply w it h ev ery st andard. Hence, flexible com pliance produces great er safet y at fewer cost s. I n or der t o sust ain flexibilit y t he enforcem ent officials should choose a t it - for- t at st r at egy: m axim al enfor cem ent if a firm has est ablished a r ecor d of m inim al com pliance, and flexible enforcem ent if t he firm has a recor d of flexible com pliance. Under t his cooperat iv e st r at egy enforcem ent is charact er ized by negot iat ions ( Velj anovski, 1984) . The enforcem ent officials w ill t ry t o per suade t he firm t hat com pliance, som et im es ext ralegal com pliance, is t he cheapest act ion in order t o achieve t he highest safet y gains. The firm w ill t ry t o per suade t he officials t hat com pliance is infeasible or ext r em ely cost ly in order t o m inim ize com pliance cost s.

Evaluat ing t he argum ent

That fire safet y regulat ion is incom plet e is self- evident . There ar e very differ ent t y pes of est ablishm ent s. The regulat ion it self varies from very det ailed requir em ent s t o very open-ended norm s. Par t of t his problem is solved by t he obligat ion of a license, in which special requirem ent s can be included.

I t is m ore difficult t o det erm ine whet her – in general – t he regulat ion is m ore under - or overinclusiv e. As said, t here are t w o at t it udes at t he enforcem ent officials. Som e say t hat t he regulat ion is j ust a m inim um t o which everyone has t o com ply. For som e propriet or s it is necessary t o im pose even st rict er rules. This fit s t o t he descr ipt ion of t he enforcem ent policy of Ricket t s and Peacock ( 1996) where t he m unicipalit y t ries t o achiev e as high as possible levels of precaut ion. Ot her enfor cem ent officials speak m ore in t erm s of t he requir ed level of fire safet y . They ar gue t hat t he basic quest ion is whet her it is fire proof in a bar or rest aurant . They do not consider every m inor violat ion im port ant . This fit s t o t he descript ion of Scholz ( 1991) w here t he m unicipalit y t ries t o achieve t he highest safet y gains. The enforcem ent officials hav e sufficient discret ion t o det erm ine t he precaut ions propr iet ors have t o t ake. But cooperat ion is necessary because t he enfor cem ent officials lack t he inform at ion t o det erm ine and enforce t he first - best levels of precaut ions. The officials say t hey are only m oderat ely inform ed about cost s of com pliance, but have an inform at ional advant age on t he expect ed dam age and t he regulat ion.

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while t he fir e safet y depart m ent m ay allow t he flexible propriet or t o choose com pliance at a point t hat bet t er suit s ( for exam ple t hat depends on t erm s by supplying com panies) . ( 3) Being uncooperat ive m ay im ply t hat t he m unicipalit y will also not be ready t o help t he propriet or if t hat is needed. Howev er, what is not clear, is w hen propriet ors choose a cooperat ive approach. Are t hey only behaving cooperat ively aft er inspect ion or also absent inspect ion ( t hroughout t he year) ? I suspect t he form er, because t here are m any violat ions found at first inspect ions, because propr iet or s are only generally inform ed about fire safet y and have t o be inform ed over and over again, and because being cooperat ive ( uncooperat iv e) is only rew arded ( punished) aft er inspect ion.

So t here are sufficient ar gum ent s why enforcem ent benefit s from flexibilit y and cooperat ion. However , t his does not im ply t hat t he curr ent level of flexibilit y is opt im al. Fir st , cooperat ive enforcem ent im plies t hat t he inspect ors are flexible for cooperat ive propriet or s, but choose st rict enforcem ent against uncooperat ive propr iet or s ( “ t it - for- t at ” ) . Under t he observed policy uncooperat ive propriet ors are able t o delay com pliance t o a lar ge ext ent , because it t akes a lot of t im e before official procedures are st art ed. The inspect or s should im m ediat ely adopt a st rict enforcem ent policy if t hey det ect t hat a propriet or is unw illing t o cooperat e. Secondly a cooperat iv e enforcem ent st rat egy also includes t he t hreat t hat enforcem ent officials abuse t heir discret ionary pow ers t o m axim ize t heir own int erest s and apply unj ust ified discrim inat ion bet w een propr iet or s. The obligat ion t o st rict ly enforce violat ions m ight lead t o a bet t er, alt hough not first - best , r esult . I t is not obv ious t hat t he regulat ion is so incom plet e t hat st rict enforcem ent produces undesirable result s.

3 .6 Su pple m e n t a r y e n for ce m e n t – com plia n ce a s ow n r e spon sibilit y

A final com m ent of t he enfor cem ent officials is t hat com pliance is first of all t he responsibilit y of t he propriet or him self. I nspect ion is only a random indicat ion. Therefore, t hey argue, t hey can not be expect ed t o enforce cont inued com pliance at all t im es by arbit rar ily punishing ev ery violat ion. I t is bet t er t o use inspect ion t o persuade t he propriet or t hat he has t o guarant ee com pliance t hroughout t he year.

The t heoret ical defense

I n it self, an appeal t o t he ow n responsibilit y of t he propriet or seem s t o be a weak argum ent . Such an appeal can be m ade by every enforcem ent official, for ever y kind of regulat ion. However, in a som ew hat different cont ext t here m ight be a defense of st im ulat ing t he own responsibilit y of t he propr iet or . I n m any sit uat ions t he im port ance of public enforcem ent is not t o induce com pliance on it s ow n, but t o supplem ent privat e enforcem ent . As discussed in sect ion 3.1, public enforcem ent m ight be needed as a supplem ent if t he propriet or is ignorant of t he ( ex- ant e) precaut ions he can t ake t o prevent dam ages ( ex- post ) . There are t hree ot her relevant weaknesses of priv at e enforcem ent .

First , public enforcem ent is needed t o reduce t he uncert aint y about t he levels of due care

in privat e lit igat ion claim s ( Kolst ad et al., 1990) .20 I f levels of due care are uncert ain,

propriet ors will overcom ply ( in order t o be sure t hat t hey escape liabilit y) or – if uncert aint y is lar ge – undercom ply ( because m ak ing com pliance cost s w ill not lead t o a sufficient ly large reduct ion in paying com pensat ion) . Under such uncer t aint y public regulat ory st andar ds

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im posed ex- ant e m ight be helpful, at least when cour t s will follow t he r egulat ory st andar d in a predict able way.

A second – relat ed – pr oblem is t hat propriet or s are short - sight ed and do not t hink of t he long t erm due t o severe com pet it ion or due t o cognit ive const raint s ( bounded rat ionalit y) . Then a propriet or m ight underest im at e t he sm all probabilit y of a fire and m ight be unaware of t he full consequences of liabilit y . I nspect ion m ight alert t hem t o t he issue of pot ent ial liabilit y dam ages and t herefor e pr event t hem from t aking inefficient pr ecaut ions.

Finally, det err ence by pr ivat e enforcem ent m ay be hindered by for exam ple wealt h const raint s or lit igat ion barriers for vict im s. Public enforcem ent m ight be needed in order t o det er non- com pliance by w ealt h const rained firm s, so t hat t hese firm s will at least t ake som e precaut ions. Addit ional privat e enforcem ent induces t hose propriet ors t hat have sufficient asset s t o t ake higher pr ecaut ions ( Schm it z 2000) .

Evaluat ing t he argum ent

Despit e no one of t he enforcem ent officials m ent ioned t he supplem ent al funct ion of public enforcem ent , it m ight be relevant . Consider t he t hree argum ent s discussed.

I t is quit e well possible t hat propriet or s are uncert ain about t he ev aluat ion of t heir behavior by cour t s, and t hat t hey are not able t o inform t hem selves about t his ev aluat ion against reasonable cost s. The probabilit y of a fire and especially of casualt ies is sm all. Most claim s will be set t led in relat ively int ransparent ways. Therefore it m ight be helpful t o im pose ex- ant e r egulat ory st andar ds t hat will det erm ine negligence. But it is not im m ediat ely clear w hich enforcem ent st yle is m ost appropriat e for t hese st andards. Enforcing t he regulat ory st andar d m ight be char act erized m ore by advice t han by punishm ent . But probably ( sect ion 3.1) public st andar ds can be bet t er com m unicat ed by gener al inform at ion cam paigns t han by inspect ions. Moreover, com m unicat ion about st andards m ight only be credible if t he m unicipalit y really and effect ively enforces t he st andar ds ( by a det er rence st r at egy) . Ot her wise t he propriet or is able t o argue in court t hat he believed t hat com pliance wit h t he st andar ds w as not t hat im por t ant , as t he m unicipalit y was unwilling t o allocat e r esources t o it and really t ake act ion against violat ions.

The second problem discussed is t hat propr iet or s m ight be cognit ively const rained so t hat t hey ar e unable t o t ake opt im al decisions. The int erv iew s or ot her dat a do not invest igat e t he rat ionalit y and available inform at ion of propriet ors. Probably t here is not m uch difference bet ween propr iet or s and ot her hum an beings. I n t he per iod aft er t he severe disast er in a bar in t he m unicipalit y Volendam in 2001 ( 14 casualt ies and over 200 people sever ely inj ur ed) , it is observed t hat m ost propr iet ors were aware of pot ent ial liabilit y claim s. When t his rem em brance vanishes, t he awareness also disappears. However, t he period aft er t he Volendam disast er is precisely t he period in w hich public inspect ion was m ost frequent . That pat t er n does not fit t he argum ent t hat public enforcem ent is needed at t im es when propriet or s are insufficient ly aw are of fire safet y. Apparent ly public enforcem ent suffers from t he sam e cognit ive const raint s.

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not relaxed. Public enfor cem ent is already guarant eeing a m inim al level of com pliance, w hich is not negot iable.

3 .7 Con clu sion

I analyzed different claim s w it h respect t o t he opt im al enforcem ent st yle in t he field of fire safet y regulat ion for bar s and rest aurant s. These claim s oft en im ply t hat a det er rence st rat egy is ineffect ive. I discussed t hat under cer t ain condit ions a com pliance st rat egy can indeed be effect ive. The t heoret ical ( econom ic) lit erat ure ident ifies several of t hese condit ions. However, for t he exam ple of enforcing fire safet y in bar s and rest aurant s it can be concluded t hat t he argum ent s in favor of a com pliance st rat egy are usually not valid. On t he cont rary, m ost argum ent s im ply t hat in t he curr ent sit uat ion t he balance should be shift ed t owards a m ore det er rent st r at egy .

4 . Th e de sir a bilit y of com plia n ce a n d de t e r r e n ce st r a t e gie s

The argum ent s of t he enforcem ent officials in favor of adv ice, persuasion and warnings, do not st and alone. The field of fire safet y is a classic exam ple of a field in which m ost scholar s would defend t he use of a com pliance st rat egy. So if t here are doubt s about com pliance st r at egies in t his field, it sur ely ur ges caut ion in general about com pliance st r at egies.

4 .1 Th e de ba t e be t w e e n de t e r r e n ce a n d com plia n ce st r a t e gie s

The academ ic ( especially non- econom ic) lit erat ure dist inguishes t wo enforcem ent st yles: a

det er rence or penalt y st r at egy and a ( negot iat ed) com pliance st rat egy.21 Let m e briefly

sum m arize t he dist inct ion ( see t able 1) . The cent ral idea of a det errence st rat egy is t hat t racing offenders and punishing t heir violat ions det ers t hem from com m it t ing a violat ion. I t assum es t hat t he pot ent ial offender m akes a conscious decision by com paring cost s and benefit s of ( non) com pliance. I t is a punit ive, repressiv e m et hod t hat is aim ed at achieving general det errence by im posing fear of t he consequences of violat ion. Becker ( 1968) and m ore generally t he econom ic m odels and t heories are j udged t o be t he m ain defenders of t his approach.

This st rat egy is oft en cr it icized. I ndividuals or firm s do not m ake conscious decisions, but com ply because of t he m oral int ent ion t o do so. Non- com pliance is t he result of eit her m ist ak e or m isinform at ion. A det errence st rat egy st im ulat es people t o t hink in t erm s of cost s and benefit s, r educing m oral int ent ions and hence com pliance. I t is charact er ized by ‘going by t he book’, a det ached approach w here every det ect ed violat ion is sanct ioned, wit hout any refer ence t o circum st ances or m ot ives for non- com pliance and/ or t he obj ect ive of t he rules. A det er rence st rat egy is also react ive, hence t oo lat e because t he harm has alr eady occur red. I m posing penalt ies is only a final possibilit y for rest or ing com pliance in case negot iat ions break dow n. Enforcem ent is prim arily negot iat ion, persuasion and advice inst ead of sanct ioning.

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I t should be st ressed t hat t hese st r at egies are st ereot ypes. Most scholar s prom ot e a com binat ion of t he t wo st rat egies. However, t here is a clear dist inct ion bet ween t he t wo differ ent st r at egies and bet ween t hose w ho favor t hem .

4 .2 Th e r e a l diffe r e n ce be t w e e n de t e r r e n ce a n d com plia n ce st r a t e gie s

Upon furt her exam inat ion t his dist inct ion is less clear t han it is on fir st sight . I t concer ns several fact ors at t he sam e t im e. Therefor e t he debat e about det er rence and com pliance st rat egies is oft en confusing and not helpful t o deal wit h t he problem at hand.

Usually a relat ionship is m ade bet w een rat ionalit y and det err ence st rat egies. I f a firm behaves rat ionally , a det err ence st rat egy is favorable, while if a firm is irr at ional a com pliance

st r at egy is m ost effect ive.22 Moreover, rat ional firm s are assum ed t o be am oral. How ever,

rat ionalit y does not ex clude m oralit y and is cert ainly not rest rict ed t o profit - m axim izat ion. I dem onst rat ed t hat even from a rat ional choice approach com pliance st r at egies do have t heir m erit s, while a det er rence st rat egy m ight be inappropr iat e for rat ional firm s.

The dist inct ion bet ween com pliance and det err ence st rat egies should also not concern t he t im ing of enforcem ent : ex- ant e versus ex- post , or proact ive versus repr essive. Ex- post enforcem ent is not hing m ore t han enforcem ent aft er som e dam age has act ually occurred ( harm based) while ex ant e is enforcem ent of st andar ds t hat t ry t o prevent dam age ( act

-based) .23 There is no direct relat ionship w it h t he dist inct ion bet ween det er rence and

com pliance st r at egies. For exam ple, rem edying dam age w it h a com pliance st rat egy is ex- post , while st r ict ly enforcing aut om obilist speeding is ex- ant e.

The dist inct ion bet ween a com pliance and a det er rence st r at egy should be lim it ed t o a dist inct ion bet w een t he enforcem ent st yles. The st yle describes what an enforcem ent official will do when he det ect s a violat ion. A det er rence st yle is a st yle in w hich every violat ion is im m ediat ely punished and t he enforcem ent official bases his decisions solely on his own inform at ion. A com pliance st y le is a st yle in which t he enfor cem ent agency m ight forgo som e violat ions ( for som e t im e) w hen t his induces t he firm t o reveal im por t ant inform at ion necessary for enfor cem ent .

22 E.g. Kagan and Scholz ( 1984) . 23 Shavell ( 1993) .

Ta ble 1 D e t e r r e n ce ve r su s com plia n ce st r a t e gie s

D e t e r r e n ce : Com plia n ce : Fear of consequences non- com pliance Moral approval and rej ect ion

Cost - benefit s, rat ional Spont aneous com pliance

Com m and- and- cont rol Alt ernat ive r egulat ion Punit iv e, sanct ioning Bar gaining, per suading, adv ising, infor m ing Repr essive, r eact ive Pr o- act iv e

Crim inal law, governm ent act ion Confident ialit y, social cooperat ion Generic prevent ion ( det err ence) Fight causes ( r epair )

Going by t he book ( t o t he let t er of law , bureaucrat ic)

Mot iv es and cir cum st ances

Police- officer Advisor, r elief w orker Ext rinsic incent ives I nt r insic incent ives

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4 .3 Th e obj e ct ive of e n for ce m e n t

The enforcem ent st yle should not be confused w it h t he obj ect ive of enforcem ent . From an econom ic perspect ive t he social obj ect ive of enforcem ent is t o m inim ize t he t ot al cost s of enforcem ent , i.e. t he expect ed harm for ( pot ent ial) vict im s, t he cost s of com pliance for pot ent ial offender s and t he cost s of enforcem ent . Enforcem ent should balance t he benefit s of det er rence ( less harm but higher cost s of com pliance) against t he cost s of enforcem ent .

I n regulat ory enfor cem ent of fir m s m axim izing social welfare m ay include several int erm ediat e ( not m ut ually exclusive) enforcem ent obj ect ives: ( 1) det er rence ( signal t hat non-com pliance does not pay) , ( 2) rem ediat ion ( rest ore non-com pliance) , ( 3) advice ( inform about com pliance) , ( 4) educat ion ( creat e volunt ary com pliance) , and ( 5) com plet ion ( supplem ent privat e enforcem ent ) . A different quest ion is w hich enforcem ent st yle does achieve an obj ect ive t he best . As t he analysis of t he enforcem ent of t he fire safet y regulat ion in bars and rest aurant s revealed, ar guing t hat enforcem ent is not aim ed at det errence does not im ply t hat a com pliance st r at egy should be adopt ed. My assert ion is t hat t here is no relat ionship what soever bet ween obj ect ives and st r at egies. There is no necessary relat ionship bet ween t he obj ect ive of det errence and a det errence st r at egy , or bet w een ot her obj ect ives and a com pliance st r at egy. Each of t he obj ect ives can be served by bot h a det errence and a com pliance st r at egy. Which one is opt im al, depends on t he specific condit ions and can not be st at ed in general.

4 .4 Th e obj e ct ive of de t e r r e n ce

Under det er rence ( t he focus of m ost econom ic lit erat ure) t he obj ect ive is t o induce com pliance by m aking com pliance unat t ract ive. The t hreat of sanct ions signals t hat non-com pliance does not pay. I f t he obj ect ive is t o det er offences, t he prim ary enforcem ent st y le is a det errence st rat egy in which offences are im m ediat ely punished. The det errent effect of enforcem ent relies crit ically on t he expect at ion by pot ent ial offender s t hat a det ect ed offence will consist ent ly be prosecut ed ( Fenn and Velj anovski, 1988) . Not im m ediat ely im posing a sanct ion negat ively affect s det err ence. Under a com pliance st r at egy t he firm is able t o delay com pliance or t o negot iat e a sm aller level of com pliance.

The failures of det er rence

But a det err ence st r at egy fails t o det er ( i) if regulat ion is t oo incom plet e, or ( ii) if im posing sanct ions is t oo cost ly, or ( iii) if t he enforcem ent aut horit y and it s officials have insufficient int erest in pursuing det errence.

Under a det errence st rat egy , t he enforcem ent aut horit y st r ict ly enforces t he legal st andar d. I f law is incom plet e, a det errence st rat egy t hat legalist ically enforces t he legal st andar d t o t he let t er, does not induce t he first - best level of precaut ions. Only if t he enforcem ent aut horit y is perfect ly inform ed and has sufficient discret ion, it is able t o discrim inat e bet w een firm s and t o induce t he fir st - best level of pr ecaut ions by st rict ly enforcing t his level for each firm .

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execut ing a sanct ion, but also t he cost s and consequences of convict ing innocent firm s, of running risk, of cont est ing enforcem ent act ions ( sect ion 3.4) or of crow ding out t he int rinsic m ot ivat ion t o com ply ( sect ion 3.3) . A det errence st rat egy is also cost ly if punishing ever y det ect ed violat ion reduces overall det errence. Som et im es t he enforcem ent aut horit y has t o balance t he effect s of an im m ediat e penalt y on t he offence at hand and t he im port ance of overall det errence. This is t he case if efficient enforcem ent is based on past com pliance24, so t hat it is lax for one group and severe for t he ot her. I f t he harm from serious offences is sufficient ly high, it is efficient t o t olerat e sm all offences in order t o det er t he m ore ser ious

ones ( m arginal det errence25) . And self- report ed offences have t o be punished less severe t han

non- report ed offences. I n t hese cases using a det errence st rat egy against every violat ion m ight reduce t he overall com pliance rat e.

Because of t hese cost s of im posing sanct ions a det er rence st r at egy m ay im ply t hat t he enforcem ent aut hor it y is spending m any resources on im posing sanct ions wit hout act ually enforcing t he desired level of com pliance. Not e however t hat a com pliance st rat egy is only favorable if t he enforcem ent budget is insufficient for obt aining full com pliance. I f t here is full com pliance, t here are no cost s of im posing sanct ions, including no adver se effect s on det errence. When t he sanct ion can be m ade arbit rarily high, a m inim al enforcem ent budget will be sufficient t o enfor ce full com pliance. I f however t he m axim um penalt y is binding, t he probabilit y of inspect ion should be m ade sufficient ly lar ge t o induce full com pliance. I f t he m arginal enforcem ent cost s are increasing ( due t o capacit y const raint s) , social w elfare is possibly m axim ized by enforcing som e part ial inst ead of full com pliance rat e ( Lando and Shavell, 2004) . Moreover t he enforcem ent budget m ight be insufficient t o enforce full com pliance, because t here is alm ost always com pet it ion for resour ces wit h ot her public program s or wit h pr ivat e int erest s of t he enforcem ent officials. I f t he com binat ion of t he sanct ion and t he enforcem ent budget is such t hat full com pliance can not be achieved, under det errence m ight be higher under a det errence st rat egy t han under a com pliance st r at egy due t o t he cost s of im posing sanct ions.

The final r eason why a det errence st rat egy m ay fail, is t hat enforcem ent officials ar e insufficient ly int erest ed in pur suing det errence and in consist ent ly sanct ioning every violat ion. This m ight be t he result of credibilit y problem s. I f t he enforcem ent aut horit y has insufficient int erest in det erring fut ure offences, it m ight not be inclined t o realize enforcem ent cost s. Unwillingness t o sanct ion m ay also st em fr om a m isalignm ent bet ween public int er est s and pr ivat e int er est s of t he enforcem ent officials. The officials m ight be m or e int erest ed in t heir shor t t erm career s t han in det err ing fut ure offences, or m ight not w ant t o spend sufficient t im e on ( act ual) enfor cem ent . But enforcem ent officials should not necessarily t ry t o m axim ize social welfar e. Dependent on t he available inform at ion and provided t hat t he enforcem ent budget is efficient ly det erm ined and/ or provided t hat t here is no t hreat of overcom pliance, it m ay be efficient t hat t he enforcem ent aut horit y t ries t o reduce expect ed dam age or m axim ize com pliance.

Alt ernat ives t o a det er rence st rat egy

I f a det errence st rat egy fails t o det er, different enforcem ent m et hods can be efficient . These are: ( i) t arget enforcem ent , ( ii) adj ust t he st andards downw ar ds, and ( iii) cooperat e by

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offering m ut ually beneficial deals t o t he firm . Especially ( iii) cont ains a com pliance st yle of enforcem ent .

Suppose t hat only som e par t ial com pliance level is achievable. Then it is opt im al t o t arget enforcem ent on som e subgroup of t he populat ion. This w ill induce t he t arget group t o fully com ply, while t here is no sanct ioning in t he non- t arget group. Hence t he enforcem ent aut horit y av oids t he cost s of im posing sanct ions. The best t ar get ing schem e is one t hat depends on past com pliance, for exam ple by issuing war nings. Yet , t he pr im ary enforcem ent st yle is a det er rence st r at egy . The only point is t hat t his st rat egy m ight for go a part of t he populat ion or t hat t he fir st enfor cem ent act ion is a m ovem ent t o t he t ar get group inst ead of a direct penalt y.

I f t he legal st andard can not be enforced, it is gener ally opt im al if t he enfor cem ent aut horit y adj ust s t he st andard dow nw ards and enfor ces som e inform al st andard. Again t he cost s of im posing sanct ions are av oided. A part ial com pliance rat e is realized by inducing every firm t o par t ially com ply w it h t he st andar d. This im plies not a pur e det er rence st rat egy because t he enforcem ent aut horit y should not legalist ically enforce every breach of t he st andar d but forgo m inor violat ions. However , it is a det errence st rat egy in enforcing t he adj ust ed st andard.

I f due t o incom plet e law t here is large t wo- sided uncer t aint y about t he st andar ds and about com pliance m et hods, a cooperat iv e, flexible enforcem ent st yle can be efficient . The enforcem ent aut horit y can achieve higher levels of safet y against lower enfor cem ent cost s by offering m ut ually beneficial deals t o t he firm . This im plies t hat it r equires t he firm t o reduce t he m ost im por t ant safet y problem s in exchange of reducing sanct ions for m inor violat ions.

4 .5 Opt im a l st r a t e gie s for t h e ot h e r obj e ct ive s

I n a sim ilar w ay w e can analyze w het her t he obj ect ives ot her t han det errence are m ost efficient ly achieved by a com pliance or a det errence st rat egy.

Rem ediat ion

Rem ediat ion im plies t hat enforcem ent is aim ed at rest oring com pliance. For exam ple repairing t he t echnical device t hat causes non- com pliance or cleaning- up t he envir onm ent al harm t hat w as cr eat ed by som e em ission.

Only if offences occur purely accident ally ánd enforcem ent can not be m ade dependent on t he level of rem ediat ion, im m ediat e punishm ent of violat ions has no m erit and a st rat egy of warnings is efficient . I f however it is possible t o sanct ion insufficient r em ediat ion, a det errence st r at egy t hat im poses sanct ions dependent on t he level of rem ediat ion is efficient , as t his will best induce t he firm t o choose r em ediat ion ( given t he general condit ions for a det er rence st r at egy discussed abov e) . Sim ilarly if offences also occur deliberat ely, t here is no need for lowering det er rence. I t is hard t o t hink up of any exam ple in w hich offences are t ruly accident al and in which sanct ions can not be m ade dependent on t he level of rem ediat ion.

Advice

References

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