Quantity Restrictions with Imperfect Enforcement in an Overused Commons: Permissive Regulation to Reduce Overuse?

This paper presents a model of quantity regulation as a policy variable when regulation enforcement is imperfect. The model provides a counterintuitive result: that equilibrium congestion can become worse as the quantity restriction becomes more severe. Intuitively, stricter regulation makes the detection probability lower due to the crowding effect, which makes agents more likely to violate the regulation. The effect of the regulation standard is, however, not monotonic. This implies that the optimal standard should be neither too strict nor too permissive. We also discuss optimal enforcement.