As part of their commitments under the WTO's Agreement on Trade Facilitation, many
developing countries will adopt risk management, a strategy for selecting import shipments
for inspection. In this paper we formalize key enforcement issues related to risk
management. We argue that the complexities of international trade oversight mean that
inspecting agencies lack certainty about the conditional probability that a given
shipment will comply with import regulations. Ambiguity of this sort is likely to
be important in developing countries that lack the sophisticated information technology
(IT) used in advanced risk management. We show empirically that infrequent shipments
have conditionally higher inspection rates, a finding that is consistent with our
ambiguity hypothesis. We formalize a role for ambiguity in a theoretical model of
border inspection. We calibrate the model and shock the ambiguity parameters to illustrate
the consequences of an IT-driven improvement in risk management capabilities for search
and compliance.
