A Note on Optimal Fines When Wealth Varies Among Individuals
NBER Working Paper No. 3232 (Also Reprint No. r1664)
An important result in the economic theory of enforcement is that, under certain circumstances, it is optimal for a fine to be as high as possible - to equal the entire wealth of individuals. Such a fine allows the probability of detection to be as low as possible, thereby saving enforcement costs. This note shows that when the level of wealth varies among individuals, the optimal fine generally is less than the wealth of the highest wealth individuals, and may well be less than the wealth of most individuals.
Published: The American Economic Review, Vol. 81, No. 3, pp. 618-621, (June 1991).