Author(s):	Daniel Muller, Patrick W. Schmitz
Publication Date:	November 2014
Keyword(s):	incentives, law enforcement, limited liability, penalties, repeat offenders
JEL(s):	D82, H23, K14, K42, L51
Programme Areas:	Industrial Organization
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=10249

When penalties for first-time offenders are restricted, it is typically optimal for the lawmaker to overdeter repeat offenders. First-time offenders are then deterred not only by the (restricted) fine for a first offense, but also by the prospect of a large fine for a subsequent offense. Now suppose the restriction on penalties for first-time offenders is relaxed; i.e., larger fines for a first offense become enforceable. Should overdeterrence of repeat offenders now be reduced? We show that this is the case only if the original restriction was not very strong. Otherwise, overdeterrence of repeat offenders should actually be further amplified.