AN EXPERIMENTAL STUDY OF COMPLIANCE AND LEVERAGE IN AUDITING AND REGULATORY ENFORCEMENT

Evidence suggests that individuals often comply with regulations even though the frequency of inspections and audits is low. We report a laboratory experiment based on the dynamic model suggested by Harrington (1988) to explain this puzzle in which participants move between two inspection groups that differ in the probability of inspection and severity of fine. Enforcement leverage arises in the Harrington model from movement between the groups based on previous observed compliance and noncompliance. We find that compliance behavior does not change as sharply as the model predicts. A simple model of bounded rationality explains these deviations from optimal behavior. (JEL C91, Q20, Q28 )     

EXPERIMENTAL ANALYSIS OF RISK AND UNCERTAINTY IN PROVISIONING PRIVATE AND PUBLIC GOODS

This paper uses laboratory evidence from public goods games to examine how in payoff-equivalent situations, decision makers contribute toward private or public goods when they are exposed to different kinds of risks and uncertainties in the provision of these goods. We find that location matters with subjects moving away from the environmental uncertainty in favor of strategic uncertainty when that uncertainty is located on the private good. When the uncertainty relates to the public good, subjects face both kinds of uncertainties on the same good, leading to a significant drop in contributions. An opportunity to reduce uncertainty increases cooperation. ( JEL C90, D81, H41)     

COOPERATION SPILLOVERS AND PRICE COMPETITION IN EXPERIMENTAL MARKETS

Firms often cooperate explicitly through activities such as research joint ventures, while competing in other markets. Cooperation in research and development can allow firms to internalize the external benefits of knowledge creation and increase the returns from research and development (R&D) expenditures. Such cooperation may spill over to facilitate collusion in the market, however, potentially lowering welfare and efficiency. This paper uses a laboratory experiment to examine if sellers successfully coordinate to fund a joint research project to reduce their costs, and how this collaboration affects their pricing behavior. The experiment includes control treatments with separate R&D cooperation and markets. Our results show that although participants usually cooperate when given an opportunity, cooperation is observed less frequently when they also compete in the market. Communication improves cooperation in all environments, particularly when the market is present. Nevertheless, the data provide no evidence of seller collusion in the market. (JEL D43, D71, H40, O3)