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Optimal law enforcement under asymmetric information

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Author Info

  • Mohamed Jellal
  • Nuno Garoupa

Abstract

In this paper, we focus on the problem created by asymmetric information about the enforcer's (agent's) costs associated to enforcement expenditure. This adverse selection problem affects optimal law enforcement because a low cost enforcer may conceal its information by imitating a high cost enforcer, and must then be given a compensation to be induced to reveal its true costs. The government faces a trade-off between minimizing the enforcer's compensation and maximizing the net surplus of harmful acts. As a consequence, the probability of apprehension and punishment is usually reduced leading to more offenses being committed. We show that asymmetry of information does not affect law enforcement as long as raising public funds is costless. The consideration of costly raising of public funds permits to establish the positive correlation between asymmetry of information between government and enforcers and the crime rate.

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Bibliographic Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 401.

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Date of creation: Jun 1999
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Handle: RePEc:upf:upfgen:401

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Web page: http://www.econ.upf.edu/

Related research

Keywords: Fine; probability of detection; asymmetry of information;

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  1. William M. Landes & Richard A. Posner, 1974. "The Private Enforcement of Law," NBER Working Papers 0062, National Bureau of Economic Research, Inc.
  2. Shavell, Steven, 1993. "The Optimal Structure of Law Enforcement," Journal of Law and Economics, University of Chicago Press, vol. 36(1), pages 255-87, April.
  3. Steven Shavell & A. Mitchell Polinsky, 2000. "The Economic Theory of Public Enforcement of Law," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 45-76, March.
  4. Garoupa, Nuno, 1997. " The Theory of Optimal Law Enforcement," Journal of Economic Surveys, Wiley Blackwell, vol. 11(3), pages 267-95, September.
  5. Garoupa, Nuno, 1997. "A note on private enforcement and type-I error," International Review of Law and Economics, Elsevier, vol. 17(3), pages 423-429, September.
  6. A. Mitchell Polinsky, 1979. "Private versus Public Enforcement of Fines," NBER Working Papers 0338, National Bureau of Economic Research, Inc.
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Cited by:
  1. Derek Pyne, 2004. "Can Making It Harder to Convict Criminals Ever Reduce Crime?," European Journal of Law and Economics, Springer, vol. 18(2), pages 191-201, September.

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