A Note on Optimal Fines When Wealth Varies Among Individuals

Steven Shavell

134 citations0/0 files storedNational Bureau of Economic Research

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Law, Economics, and Judicial Systems Merger and Competition Analysis Legal and Constitutional Studies

Abstract

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.

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2001Optimal magnitude and probability of fines 2005The Theory of Public Enforcement of Law 1992Optimal Sanctions When Individuals are Imperfectly Informed About the Probability of Apprehension 2007Fisheries law enforcement—A survey of the economic literature 1997Incentive compatibility constraints as an explanation for the use of prison sentences instead of fines 2012The Law and Economics of Products Liability 1993Optimal sanctions and differences in individuals' likelihood of avoiding detection 1996Cutting environmental penalties to protect the environment

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