Working Paper: NBER ID: w3429
Authors: A. Mitchell Polinsky; Steven Shavell
Abstract: 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.
Keywords: enforcement costs; optimal fines; probability of detection
JEL Codes: K42; D73
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Variable Enforcement Costs (Q52) | Optimal Fine (H21) |
| Fixed Enforcement Costs (Q52) | Optimal Fine (H21) |
| Fixed Enforcement Costs + Variable Enforcement Costs (Q52) | Optimal Probability of Detection (C61) |
| High Variable Enforcement Costs (R48) | Optimal Probability of Detection (C61) |