The Option Value of Record-Based Sanctions

36 Pages Posted: 27 Jan 2020

Date Written: January 5, 2020


This paper offers an option value-based rationale for the consideration of a non-compliance record in sentencing decisions. We study compliance decisions of a population of individuals who live for two periods. We show that when non-compliance benefits are random and independent across periods, increasing or decreasing sanctions produce different option values to current-period compliance and non-compliance. The difference between these option values provides incentives for present-period compliance and facilitates a more efficient allocation of sanctions across periods. The optimal sanction scheme depends on the magnitude of the overall sanction relative to the distribution of benefits from non-compliance.

Keywords: Graduated sanctions; Repeat Offenders; Option value

JEL Classification: D82, K42, G13

Suggested Citation

Leshem, Shmuel and Tabbach, Avraham D., The Option Value of Record-Based Sanctions (January 5, 2020). Available at SSRN: or

Shmuel Leshem

Independent ( email )

Los Angeles, CA

Avraham D. Tabbach (Contact Author)

Tel Aviv University ( email )

Ramat Aviv
Tel Aviv 69978, IL

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