Optimal Enforcement with Heterogeneous Private Costs of Punishment

20 Pages Posted: 1 May 2019 Last revised: 3 May 2019

See all articles by Brian D. Galle

Brian D. Galle

Georgetown University Law Center

Murat C. Mungan

George Mason University - Antonin Scalia Law School, Faculty

Date Written: April 30, 2019

Abstract

We formalize the idea that regulatory devices may generate different incentive effects for different individuals. These unequal incentive effects can generate social costs by causing some individuals to be over-deterred and others to be under-deterred. This is an underappreciated dimension over which one ought to compare the efficiency of various regulatory tools. We then note various methods to reduce inefficiencies caused by unequal incentive effects. Among others, we show that combining tools which have negatively correlated effects can improve welfare; increasing the probability of detection can be preferable to imposing large transferable sanctions; and fines can be inferior to other regulatory instruments when the harm from offenses vary across offenders.

Keywords: Optimal Enforcement, Fines, Choice of Instruments, Heterogeneous Incentives, Externalities, Regulation

JEL Classification: H23, K14, K23, K42

Suggested Citation

Galle, Brian D. and Mungan, Murat C., Optimal Enforcement with Heterogeneous Private Costs of Punishment (April 30, 2019). George Mason Law & Economics Research Paper No. 19-11. Available at SSRN: https://ssrn.com/abstract=3380273 or http://dx.doi.org/10.2139/ssrn.3380273

Brian D. Galle

Georgetown University Law Center ( email )

600 New Jersey Avenue, NW
Washington, DC 20001
United States

Murat C. Mungan (Contact Author)

George Mason University - Antonin Scalia Law School, Faculty ( email )

3301 Fairfax Drive
Arlington, VA 22201
United States

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