NCJ Number
74179
Journal
Economic Record Volume: 55 Dated: (March 1979) Pages: 41-46
Date Published
1979
Length
6 pages
Annotation
Formulas are developed to determine the optimal resources that should be devoted to law enforcement and the severity of penalties for convicted cheats, followed by an application to metered parking violations.
Abstract
All forms of cheating imply that some individuals pay lower prices for goods and services than others. Consequently, questions arise concerning the degree and manner of law enforcement efforts that should be undertaken to thwart individual propensities to cheat. First, cheating by consumers of producers or of other consumers is considered, when divided into the possibilities of a person being willing to take risks or being adverse to risks, the probabilities of being caught, the fines if caught, and the unit cost of illegitimate usage. Then illegitimate usage of commodities is viewed as a single indivisible act in which no factors intervene other than heavy penalties. Formulas are outlined for both situations, and a proposition presented: there exists a distribution of resources and a set of penalties for illegitimate usage which ensure that a social optimum can exist as a competitive equilibrium. Furthermore, when illegitimate usage is divided into many subacts, the optimal expenditure on law enforcement is the minimum necessary to generate a positive probability of being caught. In some interesting cases, the optimal penalty equals the market price divided by the probability of conviction, and it is optimal to spend very little on enforcement and impose a severe penalty. This analysis is applied to law enforcement of metered parking space and concludes that penalties should be higher and expenditures on enforcement low. Underlying assumptions of the analysis and variations on the proposed formulas are discussed. Additional equations which incorporate differences in individual attitudes toward risk are appended, along with three references. (Author abstract modified)