Working Paper: NBER ID: w2114
Authors: A. Mitchell Polinsky; Daniel L. Rubinfeld
Abstract: This note reexamines the theory of optimal public enforcement when litigation costs are incurred if the defendant is prosecuted at trial, and when an out-of-court settlement is possible. Using a numerical example, it is shown that settlements and litigation costs can substantially alter the optimal system of public enforcement. It is also shown that failing to take these considerations into account can significantly lower the achievable level of social welfare.
Keywords: Public Enforcement; Litigation Costs; Settlements; Social Welfare
JEL Codes: K41; D82
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Litigation Costs (K41) | Optimal Fine (H21) |
| Settlements (R23) | Engagement in Harmful Activities (K42) |
| Litigation Costs (K41) | Probability of Engaging in Harmful Activities (I12) |
| Settlements (R23) | Optimal Probability of Detection (C61) |
| Litigation Costs and Settlements (K41) | Social Welfare (I38) |