NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

Louis Kaplow

NBER Working Paper No. 3008 (Also Reprint No. r1739)
Issued in June 1989
NBER Program(s):   PE

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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Document Object Identifier (DOI): 10.3386/w3008

Published: International Review of Law and Economics, Vol. 12, No. 1, pp. 3-11, (1992) . citation courtesy of

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