The Importance of Being Honest

Murray Kemp and Yew-Kwang Ng ()

The Economic Record, 1979, vol. 55, issue 1, 41-46

Abstract: Given individual propensities to cheat (stealing, overcharging, etc.), the optimality conditions for the amount of resources devoted to law enforcement and for the severity of penalties on convicted cheats are derived. In some interesting cases, the optimal penalty equals the market price divided by the probability of conviction and it is optimal to spend very little on enforcement and impose a severe penalty. These conclusions seem to apply to the practical case of metered parking violation.

Date: 1979
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