Explaining Escalating Fines and Prices: The Curse of Positive Selection

Stefan Buehler and Nicolas Eschenbaum ()

No 1807, Economics Working Paper Series from University of St. Gallen, School of Economics and Political Science

Abstract: This paper shows that escalating fines emerge in a generalized version of the canonical Becker (1968) model if the authority (i) does not fully credit offender gains to social welfare, and (ii) lacks commitment ability. We demonstrate that the authority has no incentive to increase the fine for repeat offenders because of their positive selection. Instead, escalation is driven by the authority's incentive to reduce the fine for low-value offenders in the future and redistribute additional offender gains to society. Our analysis nests optimal law enforcement with uncertain detection and behavior-based monopoly pricing with imperfect customer recognition.

Keywords: Escalation; repeat offenders; behavior-based pricing; deterrence (search for similar items in EconPapers)
JEL-codes: D42 L11 L12 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2018-06
New Economics Papers: this item is included in nep-law and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:usg:econwp:2018:07

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