Optimal Sanctions and Endogeneity of Differences in Detection Probabilities

Offenders differ with respect to their detection probability in reality. Bebchuk and Kaplow [Bebchuk, L. A., & Kaplow, L. (1993). Optimal sanctions and differences in individuals’ likelihood of avoiding detection. International Review of Law and Economics, 13, 217–224] conclude that optimal sanctions should increase with the ability to avoid detection. We endogenize differences in detection probabilities by letting individuals choose education. The optimal sanction schedule may be reversed if individuals do not account for all benefits of education. This paper thereby demonstrates how incentives for seemingly remote decisions can be manipulated through sanction structures.