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The Optimal Use of Fines and Imprisonment If Governments Do Not Maximize Welfare

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  • INGOLF DITTMANN

Abstract

We consider a stylized model of crime and punishment in which the prosecution policy is defined by three variables: the size of punishment, the type of punishment, and the detection probability. We derive the optimal type of punishment under the assumption that the detection probability is chosen by a government whose objective function places a higher weight on the government's budget than the social welfare function does. We show that for serious crimes exclusive imprisonment is welfare maximizing. If costs of imprisonment are taken into account, the optimal punishment is a prison term with an additional fine that is smaller or equal to the costs of the prison term. For less serious crimes, fines without imprisonment are welfare maximizing. Therefore, this paper demonstrates that the standard result of the literature that fines should be used whenever feasible need not hold in the presence of a rent-seeking government. Moreover, it offers a new explanation for the widespread use of mandatory imprisonment for serious crimes. Copyright 2006 Blackwell Publishing, Inc..

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Bibliographic Info

Article provided by Association for Public Economic Theory in its journal Journal of Public Economic Theory.

Volume (Year): 8 (2006)
Issue (Month): 4 (October)
Pages: 677-695

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Handle: RePEc:bla:jpbect:v:8:y:2006:i:4:p:677-695

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Cited by:
  1. Bernhard Neumärker & Gerald Pech, 2011. "Penalties in the Theory of Equilibrium Tax Evasion: Solving King John's Problem," Public Finance Review, , vol. 39(1), pages 5-24, January.
  2. Eric Langlais & Marie Obidzinski, 2013. "Elected vs appointed public law enforcers," Working Papers 2013-06, CRESE.
  3. Wielhouwer, Jacco L., 2013. "When is public enforcement of insider trading regulations effective?," International Review of Law and Economics, Elsevier, vol. 34(C), pages 52-60.
  4. Celik, Gorkem & Sayan, Serdar, 2005. "To Give In or Not To Give In To Bribery? Setting the Optimal Fines for Violations of Rules when the Enforcers are Likely to Ask for Bribes," Microeconomics.ca working papers celik-05-08-03-12-50-26, Vancouver School of Economics, revised 06 Aug 2008.
  5. Gorkem Celik & Serdar Sayan, 2008. "On the optimality of nonmaximal fines in the presence of corruptible law enforcers," Review of Economic Design, Springer, vol. 12(3), pages 209-227, September.

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