Modeling Discretion through Randomized Strategies

This analysis is motivated by the observation that in the enforcement of environmental laws some violators are sentenced at criminal level while some others, who have in substance committed the same crime, are not punished or are sanctioned with a purely administrative or civil fine. We try to understand these apparent inconsistencies in the prosecution of environmental violations by analyzing, in a game-theoretical framework, the possible interactions between environmental authorities and firms. Even though unpredictable and contradictory enforcement can create uncertainty and adverse effects, we provide a possible answer to these incongruities: since there are no dominant strategies for the environmental agencies, their optimal rule of conduct requires that they randomize among their alternative strategies. Overall, we suggest that making environmental enforcement less predictable and creating uncertainty for the firms can help encourage deterrence and, thus, improve compliance.