NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Enforcement Costs and the Optimal Magnitude and Probability of Fines

A. Mitchell Polinsky, Steven Shavell

NBER Working Paper No. 3429 (Also Reprint No. r1819)*
Issued in October 1993
NBER Program(s):   LS

Some of the costs of enforcing laws are fixed" - - in the sense that they

do not depend on the number of individuals who commit harmful acts- -while

other costs are "variable"--they rise with the number of such individuals.

This article analyzes the effects of fixed and variable enforcement costs on

the optimal fine and the optimal probability of detection. It is shown that

the optimal fine rises to reflect variable enforcement costs; that the

optimal fine is not directly affected by fixed enforcement costs; and that

the optimal probability depends on both types of enforcement costs.

*Published: Journal of Law and Economics, Vol. 35, No. 1, (April 1992), pp.133-148

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