The Optimal Probability and Magnitude of Fines for Acts that Definitely are Undesirable
AbstractEven when society would wish to deter all acts of some type, such as tax evasion and many common crimes, the benefits from deterrence often will be insufficient to justify the expenditures on enforcement that would be required to deter everyone. If some individuals are not deterred, however, they will bear risk when fines are employed as a sanction. As a result, it may be optimal to reduce total risk-bearing costs by reducing the number of individuals who bear any risk. This can be accomplished by increasing enforcement above the level that would be justified considering only the benefits of deterrence and the direct costs of enforcement. Another possibility is that it may be optimal reduce the risk borne by those who act, by employing fines below the maximum feasible level. This latter result constitutes an instance in which the well-known implication of Becker's analysis that it is optimal to employ extreme sanctions for all offenses is invalid.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3008.
Date of creation: Jun 1989
Date of revision:
Publication status: published as International Review of Law and Economics, Vol. 12, No. 1, pp. 3-11, (1992) .
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Other versions of this item:
- Kaplow, Louis, 1992. "The optimal probability and magnitude of fines for acts that definitely are undesirable," International Review of Law and Economics, Elsevier, vol. 12(1), pages 3-11, March.
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