The firm and enforcement agency interact in more than one domain. This may arise because a single agency is responsible for enforcing more than one regulation or because it enforces the same regulation at more than one constituent plant of a multi-plant firm. For simplicity we will assume that the number of domains is two and that they are ex ante identical. In each domain the firm is required to comply with a regulation. If it complies it inflicts no environmental damage otherwise it inflicts damage d, which is commonly observed. The cost to the ith firm of compliance in domain j [ h1, 2j will be denoted cij where ci 1 and ci 2 are independent, privately observed draws from a distribution f(c) with associated cumulative F(c). F is common knowledge.
If the agency observes non-compliance by a firm in either domain it can take that firm to court (‘‘pursue’’ the firm), in which case the firm is subject to a penalty L which is exogenous. Penalties are assumed to be restricted in the sense that F(L) < 1. This implies that a policy of full-pursuit, whereby the agency pursues all 3 violations, will not generate full-compliance. The firm and enforcement agency are both risk neutral and aim to maximise expected profit and minimise expected environmental damage respectively.
can someone explain to me what F(L) < 1 implies?
if you need the context behind this model, please tell me ill explain that as well