Controlling Avoidance: Ex-Ante Regulation versus Ex-Post Punishment
Review of Law and Economics, Vol. 4, No. 1, 2008
27 Pages Posted: 13 Feb 2007 Last revised: 1 Dec 2008
Date Written: February 12, 2007
Efforts to avoid punishment are socially wasteful. Not only do they limit the deterrent effect of punishment but they may actually lead to the paradoxical result that more severe punishment for crime induces more crime. The law has therefore constantly attempted to deter avoidance efforts and has designed various enforcement measures for this purpose. This paper examines the effects of such measures on avoidance and crime. It distinguishes between two general policy tools: ex-ante regulation (e.g. Pigouvian taxes) and ex-post punishment of avoidance. The main results of this paper are that (1) ex-ante regulation, if feasible, reduces the incentives to engage in avoidance and consequently in crime; whereas (2) ex-post punishment of avoidance may induce more avoidance and more crime. The intuitive reason for the latter result is twofold: ex post punishment of avoidance increases not only the costs but also the benefits of avoidance; and avoidance and crime are generally complements. As the control of avoidance through regulation or punishment can be designed into the legal system, the results of this paper can guide policymaking. They suggest, for example, that recent trends to stiffen penalties for substantially obstructive acts might be counter productive, while imposing liability for avoidance efforts on third, economically-related parties such as lawyers and accountants may be productive in curtailing avoidance, since it acts as an ex-ante regulation for the principal offender.
Keywords: avoidance, crime, punishment, regulation, deterrence, public enforcement
JEL Classification: J22, K14, K23, K42
Suggested Citation: Suggested Citation