A Note on Optimal Public Enforcement with Settlements and Litigation Costs

A. Mitchell Polinsky, Daniel L. Rubinfeld

NBER Working Paper No. 2114
Issued in December 1986
NBER Program(s):   LE

This note reexamines the theory of optimal public enforcement when litigation costs are incurred if the defendant is prosecuted at trial, and when an out-of-court settlement is possible. Using a numerical example, it is shown that settlements and litigation costs can substantially alter the optimal system of public enforcement. It is also shown that failing to take these considerations into account can significantly lower the achievable level of social welfare.

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Published: Research in Law and Economics, vol. 12, pp. 1-8, 1989.

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