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The Optimal Probability and Magnitude of Fines for Acts that Definitely are Undesirable

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Louis Kaplow

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Abstract

Even 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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3008.

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Date of creation: Jul 1992
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Handle: RePEc:nbr:nberwo:3008

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  1. Gary S. Becker, 1968. "Crime and Punishment: An Economic Approach," Journal of Political Economy, University of Chicago Press, vol. 76, pages 169. [Downloadable!] (restricted)
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  1. A. Mitchell Polinsky & Steven Shavell, 1991. "A Note on Optimal Fines When Wealth Varies Among Individuals," NBER Working Papers 3232, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. K. Forslind, 2007. "The economics of environmental law enforcement: end-of-life vehicles," European Journal of Law and Economics, Springer, vol. 23(3), pages 223-236, June. [Downloadable!] (restricted)
  3. Mitchell Polinsky, 1999. "Corruption and Optimal Law Enforcement," Berkeley Olin Program in Law & Economics, Working Paper Series 1127, Berkeley Olin Program in Law & Economics. [Downloadable!]
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  4. Dominique Demougin & Claude Fluet, 1999. "Costly Sanctions and the Maximum Penalty Principle," Cahiers de recherche CREFE / CREFE Working Papers 100, CREFE, Université du Québec à Montréal. [Downloadable!]
  5. Matteo Rizzolli & Margherita Saraceno, 2009. "Better that X guilty persons escape than that one innocent suffer," Working Papers 168, University of Milano-Bicocca, Department of Economics, revised Jul 2009. [Downloadable!]
  6. Nuno Garoupa, 2000. "Optimal Magnitude and Probability of Fines," Economics Working Papers 454, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
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