Working Paper: CEPR ID: DP10581
Authors: Stefan Buehler; Daniel Halbheer; Michael Lechner
Abstract: This paper models payment evasion as a source of profit by letting the firm choose the purchase price and the fine imposed on detected payment evaders. For a given price and fine, the consumers purchase, evade payment, or choose the outside option. We show that payment evasion leads to a form of second-degree price discrimination in which the purchase price exceeds the expected fine faced by payment evaders. We also show that higher fines do not necessarily reduce payment evasion. Using data on fare dodging on public transportation, we quantify expected fines and payment evasion.
Keywords: Deterrence; Fine; Price Discrimination; Pricing
JEL Codes: L20; L30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| payment evasion (H26) | pricing strategies (D49) |
| maximum admissible fine (K21) | payment evasion (H26) |
| maximum admissible fine (K21) | pricing strategies (D49) |
| detection probability (C52) | pricing strategies (D49) |
| detection probability (C52) | payment evasion (H26) |
| firm decisions (G33) | payment evasion (H26) |
| firm decisions (G33) | pricing strategies (D49) |