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The optimal probability and magnitude of fines for acts that definitely are undesirable

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  • Kaplow, Louis

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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  • 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.
    • Handle: RePEc:eee:irlaec:v:12:y:1992:i:1:p:3-11
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    1. Gary S. Becker, 1974. "Crime and Punishment: An Economic Approach," NBER Chapters, in: Essays in the Economics of Crime and Punishment, pages 1-54, National Bureau of Economic Research, Inc.
    2. Polinsky, Mitchell & Shavell, Steven, 1979. "The Optimal Tradeoff between the Probability and Magnitude of Fines," American Economic Review, American Economic Association, vol. 69(5), pages 880-891, December.
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    Cited by:

    1. Polinsky, A. Mitchell & Shavell, Steven, 2007. "The Theory of Public Enforcement of Law," Handbook of Law and Economics, in: A. Mitchell Polinsky & Steven Shavell (ed.), Handbook of Law and Economics, edition 1, volume 1, chapter 6, pages 403-454, Elsevier.
    2. A. Mitchell Polinsky & Steven Shavell, 2009. "Public Enforcement of Law," Chapters, in: Nuno Garoupa (ed.), Criminal Law and Economics, chapter 1, Edward Elgar Publishing.
    3. 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.
    4. 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.
    5. 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.
    6. Garoupa, Nuno, 2001. "Optimal magnitude and probability of fines," European Economic Review, Elsevier, vol. 45(9), pages 1765-1771, October.
    7. Éric Langlais & Marie Obidzinski, 2015. "The Structure of Fines in the Light of Political Competition," Revue d'économie politique, Dalloz, vol. 125(5), pages 717-729.
    8. Insaf Bekir & Sana El Harbi & Gilles Grolleau, 2012. "The strategy of raising counterfeiters’ costs in luxury markets," European Journal of Law and Economics, Springer, vol. 33(3), pages 645-661, June.
    9. Alfred Endres & Bianca Rundshagen, 2012. "Escalating penalties: a supergame approach," Economics of Governance, Springer, vol. 13(1), pages 29-49, March.
    10. Dhami, Sanjit & al-Nowaihi, Ali, 2013. "An extension of the Becker proposition to non-expected utility theory," Mathematical Social Sciences, Elsevier, vol. 65(1), pages 10-20.
    11. Kaplow, Louis & Shavell, Steven, 1994. "Accuracy in the Determination of Liability," Journal of Law and Economics, University of Chicago Press, vol. 37(1), pages 1-15, April.
    12. 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.
    13. Forest, Adam & Kirchler, Erich, 2010. "Targeting occupations with varying reputations to increase tax revenue," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 39(3), pages 400-406, June.
    14. Levitt, Steven D., 1997. "Incentive compatibility constraints as an explanation for the use of prison sentences instead of fines," International Review of Law and Economics, Elsevier, vol. 17(2), pages 179-192, June.
    15. Miceli Thomas J. & Bucci Catherine, 2005. "A Simple Theory of Increasing Penalties for Repeat Offenders," Review of Law & Economics, De Gruyter, vol. 1(1), pages 71-80, April.
    16. Bose, Pinaki, 1995. "Regulatory errors, optimal fines and the level of compliance," Journal of Public Economics, Elsevier, vol. 56(3), pages 475-484, March.
    17. Polinsky, A Mitchell & Shavell, Steven, 1991. "A Note on Optimal Fines When Wealth Varies among Individuals," American Economic Review, American Economic Association, vol. 81(3), pages 618-621, June.
    18. BRYAN C. McCANNON, 2009. "Differentiating Between First And Repeat Offenses," Contemporary Economic Policy, Western Economic Association International, vol. 27(1), pages 76-85, January.
    19. Marceau, Nicolas, 1997. "Self-selection and violence in the market for crime," International Review of Law and Economics, Elsevier, vol. 17(2), pages 193-201, June.
    20. Tabbach Avraham D., 2013. "Crime, Punishment and Tax," Review of Law & Economics, De Gruyter, vol. 9(1), pages 97-124, July.
    21. Polinsky, A. Mitchell & Shavell, Steven, 2001. "Corruption and optimal law enforcement," Journal of Public Economics, Elsevier, vol. 81(1), pages 1-24, July.
    22. Alex Raskolnikov, 2020. "Criminal Deterrence: A Review of the Missing Literature," Supreme Court Economic Review, University of Chicago Press, vol. 28(1), pages 1-59.
    23. Philip A. Curry & Matthew Doyle, 2012. "Social Welfare and the Benefits to Crime," Working Papers 1205, University of Waterloo, Department of Economics, revised Jul 2012.
    24. Pierre Pestieau & Uri M. Possen & Steven M. Slutsky, 2004. "Jointly Optimal Taxes and Enforcement Policies in Response to Tax Evasion," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 6(2), pages 337-374, May.

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