DP10249 Overdeterrence of repeat offenders when penalties for first-time offenders are restricted
|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.