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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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  • Ingolf Dittmann, 2006. "The Optimal Use of Fines and Imprisonment If Governments Do Not Maximize Welfare," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 8(4), pages 677-695, October.
  • Handle: RePEc:bla:jpbect:v:8:y:2006:i:4:p:677-695
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    References listed on IDEAS

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    1. Roger H. Gordon & John D. Wilson, 1999. "Tax Structure and Government Behavior: Implications for Tax Policy," NBER Working Papers 7244, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Neumärker, Bernhard & Pech, Gerald, 2010. "Penalties in the theory of equilibrium tax evasion: Solving King John's problem," The Constitutional Economics Network Working Papers 01-2010, University of Freiburg, Department of Economic Policy and Constitutional Economic Theory.
    2. Eric Langlais & Marie Obidzinski, 2013. "Elected vs appointed public law enforcers," Working Papers 2013-06, CRESE.
    3. D’Antoni, Massimo & Galbiati, Roberto, 2007. "A signaling theory of nonmonetary sanctions," International Review of Law and Economics, Elsevier, vol. 27(2), pages 204-218.
    4. Chiappinelli, Olga, 2016. "Political corruption in the execution of public contracts," MPRA Paper 73487, University Library of Munich, Germany.
    5. 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.
    6. Gorkem Celik & Serdar Sayan, 2008. "On the optimality of nonmaximal fines in the presence of corruptible law enforcers," Review of Economic Design, Springer;Society for Economic Design, vol. 12(3), pages 209-227, September.
    7. 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.
    8. Olga Chiappinelli, 2016. "Political Corruption in the Execution of Public Contracts," Discussion Papers of DIW Berlin 1607, DIW Berlin, German Institute for Economic Research.

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