Escalating fines and prices : the curse of positive selection
Nicolas Eschenbaum (joint with S. Bühler)
Chapter 1 studies escalating fines for repeat offenders, that is, fine increases in the number of previous offenses. We demonstrate that a fine-setting authority does not in fact have an incentive to increase the fine for repeat offenders. However, if the authority has an interest in redistributing offender gains to society, escalation does occur and is driven by the incentive to reduce the fine for low-value offenders in the future in order to redistribute additional private gains. The model we develop nests optimal law enforcement with uncertain detection and behavior-based monopoly pricing with imperfect customer recognition.