what you don t see can t hurt you an economic analysis of morality laws this paper provides an efficiency explanation for regulation of sex drugs and gambling we propose that these morality laws can be explained by considering some activities to impose a negative externality when the activity is observed efficiency requires discretion by the individual who engages in such activities when discretion is difficult to regulate directly the activities can instead be proscribed thereby giving individuals incentive to hide their actions from others we find conditions for the first best levels of consumption and hiding to be implementable since some level of activity is efficient the optimal sanctions are not maximal ce memoire propose une explication en termes d efficacite des regulations sur les industries du sexe de la drogue et du jeu organise on suggere que ces lois de moralite peuvent etre expliquees quand on considere que certaines activites imposent une externalite negative quand l activite est observee l efficacite reclame donc une certaine discretion de la part de l individu qui s engage dans de telles activites quand cette discretion est difficile a reglementer directement les activites peuvent etre prohibees et de ce fait on donne aux individus une incitation a cacher leurs activites aux autres on etablit que des conditions de premier ordre sur les niveaux de consommation et de camouflage peuvent etre mises en application puisque qu un certain niveau d activite est efficace les peines optimales ne sont pas maximales

nonrenewable resource scarcity nonrenewable resource theory often is summarized by hotelling s rule this paper reviews theoretical extensions and empirical investigations of resource extraction models observed data are often inconsistent with the hotelling rule suggesting that other characteristics of nonrenewable resource supply including exploration heterogeneous ore quality technological progress and capital investment are important determinants of the dynamic behavior of resource prices given the persistent recurrence of concern about nonrenewable resource scarcity measures of nonrenewable resource scarcity and the empirical evidence for the time trends of those measures are reviewed finally the implications of nonrenewable resource scarcity for economic growth are examined

nobel lecture the economic way of looking at behavior an important step in extending the traditional theory of individual rational choice to analyze social issues beyond those usually considered by economists is to incorporate into the theory a much richer class of attitudes preferences and calculations while this approach to behavior builds on an expanded theory of individual choice it is not mainly concerned with individuals it uses theory at the micro level as a powerful tool to derive implications at the group or macro level the lecture describes the approach and illustrates it with examples drawn from my past and current work

accuracy in the determination of liability many legal rules notably rules of procedure and evidence are concerned with achieving accuracy in the outcome of adjudication in this article we study accuracy in the conventional model of law enforcement we consider why reducing error in determining liability is socially valuable and how error and its reduction affect the optimal probability and magnitude of sanctions this abstract was borrowed from another version of this item

the optimal use of nonmonetary sanctions as a deterrent a theoretical model of deterrence is studied in which the imposition of nonmonetary as opposed to monetary sanctions is socially costly it is therefore desirable that the system of sanctions be designed so that sanctions are imposed infrequently if courts possess perfect information the optimal system is such that sanctions are never imposed all who can be deterred will be but realistically courts information will be imperfect and sanctions will be imposed copyright 1987 by american economic association

on the effective use of stigma as a crime deterrent abstract stigma affects convicted offenders if employers reduce their wage current research considers this kind of informal sanctioning as an effective means for reducing crime and proposes its fostering by the government in this article i first show that increasing stigma may even enhance crime while stigma enhances deterrence of an unconvicted offender it may drive a stigmatized ex convict towards recidivism secondly i provide a solution for guaranteeing stigma s effectiveness notably a harsh er punishment for repeat offenders is required finally with the theoretical analysis as a background stigmatization policies pursued in the states switzerland and spain are compared

irs as loan shark tax compliance with borrowing constraints abstract this paper considers a simple dynamic model of tax compliance in which people may face binding borrowing constraints the model leads to much different conclusions and policy recommendations than static models in particular the government cannot generate full compliance by setting the expected value of cheating to be negative also it is possible for the government to set penalties in a way that will increase tax revenue over that of full compliance the government can increase welfare by playing the role of loan shark to people whose borrowing is constrained on the private market

legal principles in antitrust enforcement we study antitrust enforcement to channel price fixing incentives of cartels through setting fine schedules and detection levels fines obey legal principles punishments fit the crime proportionality bankruptcy considerations and minimum fines bankruptcy considerations limit maximum fines ensure abnormal cartel profits and impose a challenge for optimal antitrust enforcement we derive the fine schedule and detection level that are constrained optimal under legal principles and sustainability of cartel prices this fine schedule lies below the maximum fine makes collusion on lower prices more attractive than on higher prices and hence relates to marginal deterrence literature this article is protected by copyright all rights reserved

an economic analysis of tax amnesties abstract tax amnesties have frequently been justified as politically popular ways to generate increases in government revenue this paper examines the circumstances under which amnesties are likely to have a beneficial impact on revenue collections it concludes that while in general it may be correct to impose a reduced penalty on individuals who voluntarily disclose tax evasion shortlived amnesties of the type most frequently observed in practice are unlikely to generate genuinely additional revenue particularly when judged against the potential danger of reducing future tax compliance

crime punishment and prejudice abstract we examine the link between the penalties used to punish convicted criminals and judicial prejudice against defendants in our model agents choose to commit crimes if their privately observed utility from doing so is high enough a crime generates noisy evidence and defendants are convicted when the realized amount of evidence is sufficiently strong to establish the probability of guilt beyond a fixed threshold we show that if convicted offenders are incarcerated poorer individuals face a strong prior prejudice in trials and are therefore convicted with less evidence than richer individuals at the same time they commit crimes more frequently penalties such as monetary fines can eliminate this bias but may also reverse it we fully characterize the penalty schedule that guarantees an unbiased equilbrium we extend the model such that agents also differ in characteristics such as race or gender we show biased outcomes targeted at subgroups of the population may still exist even if all members of the population are ex ante alike in their economic characteristics

burglary and income inequality abstract in a model where risk neutral agents have differing legal incomes which may be supplemented by burglary we study the effects of income distribution on the level of burglary assuming that a detected burglar is incarcerated for a fixed term and assuming that burglars choose target houses using the signal of house quality we show how increases in income inequality may increase the level of crime in particular increases in relative differential inequality unambiguously increase burglary crime corollaries are that a more regressive income tax increases the level of crime and that richer neighborhoods may have lower crime rates

incarceration and incapacitation evidence from the 2006 italian collective pardon abstract in august 2006 the italian government released one third of the nation s prison inmates via a national collective pardon we test for a discontinuous break in national crime rates corresponding to the mass release we also test for the effect of the return of the incarceration rate to its predicted steady state level on national crime rates finally we exploit regional variation in prison releases based on the province of residence of pardoned inmates all three sources of variation yield substantial incapacitation effect estimates and suggest that the crime preventing effects of incarceration diminish with increases in the incarceration rate jel k42

the optimal use of fines and imprisonment when wealth is unobservable abstract this article studies the optimal use of fines and imprisonment when an offender s level of wealth cannot be observed by the enforcement authority i employ a model in which there are two types of offenders a low wealth type and a high wealth type the consequence of the unobservability of wealth depends on whether the enforcement authority would employ fines alone or would also impose imprisonment sentences if wealth were observable in the former case the inability to observe wealth lowers social welfare but in the latter case the unobservability of wealth does not lower social welfare in both cases offering offenders a choice of sanctions can induce high wealth offenders to pay higher fines even though their wealth is unobservable specifically a relatively high imprisonment sentence must accompany the payment of a low fine so that high wealth offenders will prefer to pay a higher fine and bear a lower possibly no imprisonment sentence

environmental crime and punishment empirical evidence from the german penal code u s and e u environmental policy employ criminal sanctions to enforce compliance recent moves toward revising their use are based on little empirical evidence as to their effectiveness this paper exploits a unique dataset to study the deterrent effect of criminal enforcement the dynamic panel data analysis leads to three findings first criminal sanctions do provide the intended deterrent effects second standing trial provides one of the most significant deterrents rather than the probability of conviction or the magnitude of fines third public preferences regarding environmental quality and political economy variables affect reported environmental crime

tax evasion and the marginal cost of public funds tax evasion and deadweight loss have similar implications for the rules of public finance the optimal mix of taxes can be derived from the minimization of the sum of aggregate deadweight loss and aggregate cost of tax evasion similarly the marginal cost of public funds includes allowances for marginal deadweight loss and marginal cost of tax evasion per dollar of public revenue acquired

fines and reputational sanctions the case of cartels abstract in this article we revive an old debate in the law and economics literature the relative role of public and reputational sanctions in deterring misconduct we propose an empirical framework which accounts for public sanctions in our case cartel fines and a more direct measure of reputational sanctions harnessing recent developments in opinion mining we use the intensity and the sentiment of media exposure of misconduct as a measure of reputational effect and thus approximation of the reputational sanction as a demonstration we combine an event study approach sentiment analysis and econometric techniques on a sample of 339 listed cartel member firms prosecuted by the european commission between 1992 and 2015 our results offer evidence that in the context of cartels public and reputational sanctions act as substitutes where there is a reputational penalty increasing this penalty reduces the effect of the public sanction one the other hand in the absence of a reputational punishment the effect of the cartel fine steps in

debtors prisons in america an economic analysis abstract debtors prisons have been commonplace throughout history including in the united states while imprisonment for debt no doubt elicited some repayment by benefactors of the debtor we argue that its primary function was to deter default in the first place by giving borrowers an incentive to disclose hidden assets because of its cost however imprisonment was destined to be replaced by more efficient ways of preventing borrowers from sheltering assets empirical analysis of state laws banning imprisonment for debt provides some support for this argument in particular the results suggest that states in which the publishing industry developed sooner thus facilitating the flow of information were more likely to enact early bans on imprisonment for debt

optimal imprisonment and fines with non discriminatory sentences abstract when considering the optimal combination of monetary sanctions costless and imprisonment costly as deterrents the traditional result is that imprisonment should not be imposed until monetary sanctions are completely exhausted therefore imprisonment acts as a mere supplement to maximal fines we show that when wealth varies across individuals it could be efficient to use imprisonment in combination with fines that do not exhaust the wealth of all individuals the rationale is that generally it is impractical to tailor criminal sanctions as a continuous function of individuals wealth

steady state growth in a hotelling model of resource extraction this paper re examines the hotelling model of optimal nonrenewable resource extraction in light of stock effects and technological progress we assume functional forms for cost and demand so that the solution to the hotelling problem is a steady state consistent with the empirical observation that the growth rates of market prices have remained zero over a long period of time we use data on 14 minerals from 1970 to 2004 to estimate the supply and demand functions using sur and 3sls and to test the model we validate the model for 8 of 14 minerals c 2007 elsevier inc all rights reserved

marginal deterrence in enforcement of law we characterize optimal enforcement in a setting in which individuals can select among various levels of some activity all of which are monitored at the same rate but may be prosecuted and punished at varying rates for less harmful acts marginal expected penalties ought to fall short of marginal harms caused indeed some range of very minor acts should be legalized for more harmful acts whether marginal expected penalties should fall short of or exceed marginal harms depends on the balance between monitoring and prosecution punishment costs we also explore how the optimal enforcement policy varies with changes in these costs

avoidance screening and optimum enforcement a standard assumption in the economic literature on crime and punishment is that fines are costless transfers given this assumption several economists have argued that it is optimal to set the fine for engaging in a proscribed activity as high as possible the argument is a simple one raising the probability of a fine is costly since it requires devoting more resources to monitoring and apprehending individuals in contrast raising the magnitude of a fine is costless therefore the least costly way to achieve a given expected fine is to set the fine as high as possible presumably equal to the offender s wealth and adjust its probability so that the desired expected fine is obtained

oil prices relative prices and balance of payments adjustment this paper attempts to ascertain the relative importance of foreign and domestic prices relative prices the exchange rate and domestic credit in their effects on the balance of payments and the rate of inflation it also discusses the question of whether the effect of the oil crisis on the turkish economy can be fully explained by the changes in observed price level relative prices and real income the oil crisis is modelled as an economic intervention and its dynamic effects on the inflation rate and the balance of payments are measured

a critical review of iran s buyback contracts abstract iran s oil and gas industry requires investments of us 15 billion in the short term and over us 70 billion in the medium term iran tries to interest international oil companies ioc in investing in iran s oil and gas business by offering buyback contracts under a buyback contract an ioc invests and when production starts the field is handed over to the national iranian oil company nioc or one of its representatives the ioc gets its costs and an agreed upon profit paid out of the oil and or gas gross profits assuming the field produces as agreed upon and the international energy prices are high enough according to the iranian government the buyback contract contains sufficient incentives for an ioc to invest in iran the iocs however disagree they claim that they solely bare the risks in a buyback contract whereas the iranian counterpart receives all windfall profits furthermore the iocs claim that the utilisation of iran s oil and gas reserves will be sub optimal if they are not involved in optimising long term recovery in this paper we investigate these claims and show that they are partly correct given iran s need for investment capital iran might have to change its policy

oil production responses to price changes an empirical application of the competitive model to opec and non opec countries abstract falling oil prices over the last decade accompanied by over production by some opec members and the growth of non opec supply warrant further empirical investigation of the competitive model to ascertain production behavior a supply function based on a modification of griffin s model is estimated using data from 1973 1997 the sample period unlike griffin s however includes phases of price increase 1970s and price decrease 1980s 1990s thus providing a better framework for examining production behavior using the competitive model the opec results do not support the competitive hypothesis instead a negative and significant price elasticity of supply is obtained this result offers partial support for the target revenue theory for most of the non opec members the estimates support the competitive model opec s loss of market share and the drop in the share of oil based energy should signal adjustments in price and quantity based on a competitive world market for crude oil

torture and the commitment problem we study torture as a mechanism for extracting information from a suspect who may or may not be informed we show that a standard rationale for torture generates two commitment problems first the principal would benefit from a commitment to torture a suspect he knows to be innocent secondly the principal would benefit from a commitment to limit the amount of torture faced by the guilty we analyse a dynamic model of torture in which the credibility of these threats and promises is endogenous we show that these commitment problems dramatically reduce the value of torture and can even render it completely ineffective we use our model to address questions such as the effect of enhanced interrogation techniques rights against indefinite detention and delegation of torture to specialists

do drunk drivers pay their way a note on optimal penalties for drunk driving this paper uses a simple framework to describe optimal penalties for drunk driving and reviews available data to judge current policies against this standard the analysis suggests that policies should be designed so that the penalties paid by drunk drivers equal the value of the increased risks drunk drivers impose on others current penalties appear to be too lenient implying that current levels of drunk driving are too high

how to make the fine fit the corporate crime an analysis of static and dynamic optimal punishment theories abstract this paper investigates dynamic optimal punishment theory previous studies of optimal punishment theory have all been confined to a static setup the most celebrated result in the literature is becker s 1968 optimal punishment theory which states that the optimal fine should be a multiple of the social cost of the crime i show that this result is no longer valid in a dynamic environment the implications of the dynamic model of optimal punishment are found to be strikingly different from those of the static model

a model of optimal incapacitation one of the functions of the criminal sanctions of imprisonment and the death sentence is to prevent individuals from doing harm by removing them from the population this incapacitative function of sanctions is considered below in a model in which the amount of harm individuals cause each period that they are free is not influenced by the threat of sanctions so as to abstract from the role of sanctions as a deterrent 2 the model is initially examined assuming that an individual s dangerousness i e the harm he will do if free remains the same each period of his life and that the sanction is imprisonment in this case it is optimal to imprison an individual if his dangerousness exceeds a threshold equal to the per period social cost of imprisonment moreover if it is optimal to imprison an individual at all it will be best to do so for life the optimal probability of apprehension is also determined the model is then extended in several ways it is first supposed that the dangerousness of individuals declines with age in this case it is again optimal to imprison individuals if their dangerousness exceeds the per period cost of imprisonment but it is optimal to release them if their dangerousness later falls below the threshold it is next supposed that the dangerousness of individuals declines with time spent in prison due to a rehabilitative effect in this case it is optimal to imprison individuals beginning at a lower threshold of dangerousness than the per period cost of imprisonment imprisonment is now socially more valuable and to release them if their dangerousness becomes sufficiently low finally it is supposed that a choice can be made between imprisonment and the death penalty and the optimal choice is discussed

regulating externalities through testing abstract testing for compliance with regulation of a negative externality is analyzed in a strategic framework the outcome is described where the number tested and the penalties for observed noncompliance are each controlled by different agencies or by different levels within the regulatory agency and where the number tested cannot be precommitted comparative statics results are provided and the equilibrium is compared with the welfare optimum for different objectives of those doing the testing it is shown that the actual enforcement decision can sometimes be optimally delegated even if those doing the enforcement have objectives different from minimizing expected social cost

trends in natural resource commodity prices an analysis of the time domain abstract this paper attempts to reconcile the theoretical predictions of increasing real prices for nonrenewable natural resource commodities obtained from hotelling style models with the empirical findings of falling prices for these commodities a theoretical model for relative price movements is derived for the case of exogenous technical change and endogenous change in the grade of ores mined the model suggests a u shaped time path for relative prices the implied price movements are tested for all the major metals and fuels and the model parameters are found to be statistically significant for 11 out of the 12 commodities tested

the time path of scarcity rent in the theory of exhaustible resources there is now a consensus in the literature on resource economics that a depletable resource should command a price in excess of its marginal extraction cost simply to reflect the opportunity cost of using a unit of it today rather that conserving it for the future but how this excess is to change along an optimal or competitive equilibrium path of resource use is still an unresolved question this might at first seem puzzling since according to the fundamental theorem of economics of exhaustible resources or hotelling i 93 i rule on an optimal path price minus marginal extraction cost also termed interchangeably as scarcity rent user cost or royalty should steadily grow over time at the social rate of discount however the literature contains sharply contrasting views on the subject for example kay and mirrlees 1975 have argued that since along an optimal path the scarcity rent grows exponentially as a finite stock of a resourcexnears exhaustion then situations in which the resource stock is still very large and yet the price greatly exceeds the marginal extraction cost should indicate that the price is significantly above its optimal level and that the resource is overconserved in stark contrast to this view heal i976 has argued that as the resource stock nears exhaustion the difference between price and marginal cost or what he termed social cost of extraction falls monotonically to zero hanson i980 analyses the same model as heal s but unlike heal who assumes the unit extraction cost to be convex he postulates it to be concave and yet like heal concludes that the scarcity rent will be monotonically declining over time solow and wan i976 analyse a still different situation where resource deposits differ in quality and the unit extraction cost increases as higher grade deposits are exhausted and extraction proceeds to lower grades they show that along an optimal path the shadow price of a resource must rise at the real rate of interest despite differential extraction costs but that the difference between price and the marginal extraction cost or what they call degradation charge declines monotonically over time to zero these sharply differing conclusions suggest that far from being resolved the question of how scarcity rent changes over time is much in want of a close scrutiny the need for such a scrutiny becomes even stronger once it is noted

do iran s buy back service contracts lead to optimal production the case of soroosh and nowrooz abstract we model the dynamically optimal oil production on iran s offshore soroosh and nowrooz fields which have been developed by shell exploration through a buy back service contract in particular we examine the national iranian oil company s nioc actual and contractual oil production behavior and compare it to the production profile that would have been optimal under the conditions of the contract we find that the contract s production profile is different from optimal production profile for most discount rates and that the nioc s actual behavior is inefficient its production rates have not maximized profits because the nioc s objective is purported to be maximizing cumulative production instead of the present discounted value of the entire stream of profits we also compare the nioc s behavior to the production profile that would maximize cumulative production we find that even though what the contract dictates comes close to maximizing cumulative production the nioc has not been achieving its own objective of maximizing cumulative production

marginal deterrence at work abstract the marginal deterrence principle of law enforcement implies that penalties must be scaled according to the severity of crimes in order to deter individuals from committing more severe offenses in this paper we test whether the us legal system is consistent with the rational economic model of marginal deterrence to this purpose we use novel and unique data on sentence length for a large sample of inmates in us correctional facilities combined with an official ranking of crimes by severity and with proxies for the maximum possible punishment and for the cost of monitoring criminals specifically the cost of policing in each us state over a period spanning up to 50 years we find that sentences are on average longer in states where maximum punishment is higher and monitoring cost is lower we document that these relations are systematically stronger in states where the private benefits from crime are more heterogeneous finally we show that sanctions increase relatively faster with the severity of crimes in states with higher maximum punishment and lower monitoring cost overall these results point to the rational economic model of marginal deterrence as providing a reasonable description of the actual enforcement policies chosen by regulators

a general equilibrium model of crime commission and prevention abstract the model developed in this paper features a general equilibrium specification of the relationships among criminals victims of crime and a law enforcement agency these relationships are employed to endogenously derive an explicit intuitively appealing technology of crime commission and prevention the solution to the present model is therefore obtained with a set of more elementary assumptions than the previous literature where arbitrary curvature assumptions are invoked

the optimal use of fines and imprisonment abstract this paper examines the use of fines and imprisonment to deter individuals from engaging in harmful activities these sanctions are analyzed separately as well as together first for identical risk neutral individuals and then for two groups of risk neutral individuals who differ by wealth when fines are used alone and individuals are identical the optimal fine and probability of apprehension are such that there is some underdeterrence if individuals differ by wealth then the optimal fine for the high wealth group exceeds the fine for the low wealth group when imprisonment is used alone and individuals are identical the optimal imprisonment term and probability may be such that there is either underdeterrence or overdeterrence if individuals differ by wealth the optimal imprisonment term for the high wealth group may be longer or shorter than the term for the low wealth group when fines and imprisonment are used together it is desirable to use the fine to its maximum feasible extent before possibly supplementing it with an imprisonment term the effects of risk aversion of these results are also discussed

criminal sentences as endogenous taxes are they just or efficient crime is a negative externality that arises out of the personal freedom afforded individuals in most societies society seeks to control crime through various means mainly imprisonment one can conceive of criminal sentences as pigouvian taxes that are costly to administer 1 the literature on optimal harm correcting taxes is usually normative that is the planner is assumed to be at liberty to choose taxes that maximize some objective function 2 in many circumstances it may be preferable to think of taxes in this case criminal sentences as endogenous variables the outcomes of conscious political or judicial decision making in the absence of perfectly functioning markets underlying political or judicial decisions endogeneity may not beget optimality for the case of criminal sentencing frank easterbrook argues that the discretion exercised by prosecutors judges and parole authorities causes the crimi

the political economy of indirect control this paper characterizes the efficient sequential equilibrium when a government uses indirect control to exert its authority we develop a dynamic principal agent model in which a principal a government delegates the prevention of a disturbance such as riots protests terrorism crime or tax evasion to an agent who has an advantage in accomplishing this task our setting is a standard dynamic principal agent model with two additional features first the principal is allowed to exert direct control by intervening with an endogenously determined intensity of force which is costly to both players second the principal suffers from limited commitment using recursive methods we derive a fully analytical characterization of the likelihood intensity and duration of intervention the first main insight from our model is that repeated and costly interventions are a feature of the efficient equilibrium this is because they serve as a punishment to induce the agent into desired behavior the second main insight is a detailed analysis of a fundamental tradeoff between the intensity and duration of intervention which is driven by the principal s inability to commit finally we derive sharp predictions regarding the impact of various factors on likelihood intensity and duration of intervention we discuss these results in the context of some historical episodes

why do increased arrest rates appear to reduce crime deterrence incapacitation or measurement error this paper attempts to discriminate between deterrence incapacitation and measurement error as explanations for the negative empirical relationship between arrest rates and crime measurement error cannot explain the observed patterns in the data incapacitation suggests that an increase in the arrest rate for one crime will reduces all crime rates deterrence predicts that an increase in the arrest rate for one crime will lead to a rise in other crimes as criminals substitute away from the first crime empirically deterrence appears to be the more important factor particularly for property crimes jel k42

are fines and prison terms used efficiently evidence on federal fraud offenders optimal penalty theory predicts that because imprisonment is costly and fines are costless fines will be used to the maximum extent possible before they are supplemented with imprisonment if criminal procedure functions as a market system as some observers have suggested then optimizing models of sanctions may be viewed as positive and not just normative descriptions of criminal sentencing this article examines the use of fines and prison terms to punish federal fraud offenders we find that prison terms depend strongly and positively on harms while fines depend strongly and positively on ability to pay in addition individuals punished with higher fines receive shorter prison terms a finding that supports efficient punishment over some of its alternatives these results demonstrate optimizing tendencies in sentencing even if not optimality itself

optimal magnitude and probability of fines abstract the economic literature on crime and punishment focuses on the trade off between probability and severity of punishment and suggests that detection probability and fines are substitutes in this paper it is shown that in the presence of substantial underdeterrence caused by costly detection and punishment these instruments may become complements when offenders are poor the deterrent value of monetary sanctions is low thus the government does not invest a lot in detection if offenders are rich however the deterrent value of monetary sanctions is high so it is more profitable to prosecute them