A General and Simple Theory to Establish the Imposed Punishment

Abstract

Starting from the standard concepts related to the utility function of the agents, we build a general theory on the imposed punishment. This general theory can be theoretically applied to every situation in which a rule is violated, and it can be directly applied to crimes that can be easily monetized.

Indeed, we show that the “expected punishment” has to exceed (but has to be commensurate with) the maximum utility gain that can be obtained from the violation of the rule. Therefore, the required imposed punishment can be quantified dividing the gain that can be obtained from the violations with the probability that the violation is discovered.

We find that, in order to reduce the delinquency rate, the regulator can: (i) improve the “social responsibility” or increase the “social stigma”; (ii) improve the probability of discovering the violations; (iii) increase the punishment of the discovered criminal. Every choice has costs and benefits. The increased punishment for the discovered criminals is probably the least expensive choice, but it is the least socially fair.

Keywords: expected punishment, illegal behavior, utility function

JEL Classification: D04, D78, K14, K30, K42