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Do we need to worry about enforcement of laws?

Mohammad Amin's picture

It goes without saying that rules, laws and regulations are meaningless if they are not enforced. Yet, the bulk of the literature on the effects of various laws is completely silent on the enforcement issue. The implicit assumption is that measures based on laws on the books are a reasonably good proxy for actual enforcement of laws and so an explicit reference to enforcement is not required. Is there any reason to think this is a plausible assumption?
 
A handful of studies that focus on enforcement suggest the answer is no. For example, Ben-Bassat and Dahan (2008) look at constitutional commitments to social rights in 68 countries. The rights studied include the right to social security, education, health, housing and workers’ rights. The study finds that commitments are binding on public policy only for social security and not the rest. While the study does highlight the gap between laws on the books and their enforcement, it is difficult to infer if the gap is due to enforcement constraints per se or simply cheap talk by politicians with no intention to enforce, ex post.

Safavian and Sharma (2007) go one step further by explicitly incorporating enforcement of creditor rights where enforcement is proxied by court efficiency. Using data on firms in 27 countries in Eastern Europe and Central Asia collected by the World Bank’s Enterprise Surveys and EBRD (BEEPS, 2002, 2005), the study finds that laws that improve creditor rights have a much larger positive effect on the availability of credit when enforcement is also good. They conclude that creditor-friendly laws and efficient courts are strong compliments for credit.

Another study based on Enterprise Surveys, Almeida and Carneiro (2009), measures enforcement of labor laws by the distance between the firm’s location and surrounding enforcement offices. Focusing on Brazil, the study finds independent effects of stricter enforcement – smaller sized firms and less employment.
 
These studies suggest that laws on the books can show very different effects when considered in conjunction with the quality of enforcement. Since enforcement is likely to depend on firms’ location, size and other observable firm-characteristics, use of micro datasets like the Enterprise Surveys is perhaps the most useful way forward.

Comments

I agree with the view that there will most often be significant "added cost" to regulation, which are not visible by looking at de jure regulation. De facto implementation often differs remarkably from what is written down in laws and regulations. But I am a bit sceptical about the implicit policy recommendation of this finding: "As expected, heavier regulation of businesses significantly increases the difficulty that firms face in obtaining information and this holds even if we control for differences in per capita incomes, firm-size, etc." Consequently, I assume the suggested solution would be to lower regulation to simplify information gathering. While this might not be wrong per se I wonder about the relevance and importance of other factors, which are increasing information about regulation. If the level of regulation is not changing (...and there might be good reasons in some cases to leave things as they are) there are certainly many measures to increase information among the private sector about regulation. For instance I learnt from a one-stop-shop in Mozambique that although there has been no change in the regulation of business registration it has been the public display of the respective regulation at the one-stop-shop that has significantly increased awareness among business owners. Thus, simply cutting red tape to solve the problem of an information gap seems to be a bit lopsided. It might be necessary in some cases but public administration has to think about creative ways to better inform the private sector as well. We discuss this and other issues of regulatory reform in a recent article "Business environment reforms: why is it necessary to rethink priorities and strategies".

Submitted by Rosa on
The links to Ben-Bassat and Dahan (2008), Safavian and Sharma (2007) and Almeida and Carneiro (2009) failed to open. Could you please indicate functioning links?

Submitted by Ryan Hahn on
Hi Rosa, I think the links we used were for World Bank users. I've replaced them with links that should work externally. Let me know if you still have trouble. Best, Ryan

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