ISSN1045-6333 HARVARD JOHN M. OLIN CENTER FOR LAW. ECONOMICS AND BUSINESS ECONOMIC ANALYSIS OF PUBLIC LAW ENFORCEMENT AND CRIMINAL LAW Steven Shavell Discussion Paper No 405 02/2003 Harvard Law School Cambridge ma 02138 This paper can be downloaded without charge from The Harvard John M. Olin Discussion Paper Serie http://www.lawharvardedu/programs/olincenter The Social Science Research Network Electronic Paper Collection http://papers.ssrn.com/abstractid=382200
ISSN 1045-6333 HARVARD JOHN M. OLIN CENTER FOR LAW, ECONOMICS, AND BUSINESS ECONOMIC ANALYSIS OF PUBLIC LAW ENFORCEMENT AND CRIMINAL LAW Steven Shavell Discussion Paper No. 405 02/2003 Harvard Law School Cambridge, MA 02138 This paper can be downloaded without charge from: The Harvard John M. Olin Discussion Paper Series: http://www.law.harvard.edu/programs/olin_center/ The Social Science Research Network Electronic Paper Collection: http://papers.ssrn.com/abstract_id=382200
JEL Classifications: D00 D6 D8 K00 K14K32 K42 L5 HOO ECONOMIC ANALYSIS OF PUBLIC LAW ENFORCEMENT AND CRIMIINAL LAW Steven shavells ABSTRACT This paper contains the chapters on public enforcement of law and on criminal law from a general, forthcoming book, Foundations of Economic Analysis of Lany(Harvard University Press, 2003 ). By public law enforcement is meant the use of public law enforcement agents such as police, tax inspectors, regulatory personnel --to enforce legal rules. A number of important dimensions of public law enforcement may be distinguished. One is the choice of the basic rule of liability: whether liability is strict or fault-based, and whether liability is imposed only if harm is done or may be imposed on the basis of acts alone(independently of the occurrence of harm). A second dimension of enforcement is the type of sanction, whether monetary or nonmonetary, notably, imprisonment. A third aspect of enforcement is the magnitude of sanctions. And a fourth dimension of enforcement is the degree of enforcement effort, which determines the probability of imposition of sanctions These dimensions of enforcement are discussed in the chapters that follow. In chapter 20, the basic theory of public enforcement employing monetary sanctions is discussed; in chapter 21, the basic theory of enforcement using nonmonetary sanctions is examined and in chapter 22, extensions to the basic theory are considered Then, in chapter 23, functions of sanctions apart from deterrence, namely, incapacitation rehabilitation, and retribution, are discussed. Finally, in chapter 24, the subject of criminal law is addressed against the background of the theory of public enforcement of law Samuel R Rosenthal Professor of Law and Economics. Research support from the John M. Olin Center for Law, Economics, and Business is greatly appreciated
JEL Classifications: D00, D6, D8, K00, K14,K32, K42,L5, H00 ECONOMIC ANALYSIS OF PUBLIC LAW ENFORCEMENT AND CRIMINAL LAW Steven Shavell* ABSTRACT This paper contains the chapters on public enforcement of law and on criminal law from a general, forthcoming book, Foundations of Economic Analysis of Law (Harvard University Press, 2003). By public law enforcement is meant the use of public law enforcement agents -- such as police, tax inspectors, regulatory personnel -- to enforce legal rules. A number of important dimensions of public law enforcement may be distinguished. One is the choice of the basic rule of liability: whether liability is strict or fault-based, and whether liability is imposed only if harm is done or may be imposed on the basis of acts alone (independently of the occurrence of harm). A second dimension of enforcement is the type of sanction, whether monetary or nonmonetary, notably, imprisonment. A third aspect of enforcement is the magnitude of sanctions. And a fourth dimension of enforcement is the degree of enforcement effort, which determines the probability of imposition of sanctions. These dimensions of enforcement are discussed in the chapters that follow. In chapter 20, the basic theory of public enforcement employing monetary sanctions is discussed; in chapter 21, the basic theory of enforcement using nonmonetary sanctions is examined; and in chapter 22, extensions to the basic theory are considered. Then, in chapter 23, functions of sanctions apart from deterrence, namely, incapacitation, rehabilitation, and retribution, are discussed. Finally, in chapter 24, the subject of criminal law is addressed against the background of the theory of public enforcement of law. _____________________ Samuel R. Rosenthal Professor of Law and Economics. Research support from the John M. Olin Center for Law, Economics, and Business is greatly appreciated
Table of comments Economic Analysis of Public law Enforcement and criminal law Chapter 20. Deterrence with Monetary Sanctions 1. Certain Enforcement: Basic Theory of liability 2. Law Enforcement with a Probability: The Optimal Probability and Magnitude of Chapter 21 Deterrence with Nonmonetary Sanctions 1. Certain Enforcement with Nonmonetary Sanctions: Basic Theory of liability 2. The Optimal Probability and Magnitude of Nonmonetary Sanctions 3. When Nonmonetary Sanctions Are Optimal to employ 4. Joint Use of Nonmonetary and Monetary Sanctions 5. Different Types of Nonmonetary Sanctions Chapter 22. Extensions of the Theory of Deterrence 1. Individual Deterrence 2. Marginal Deterrence 3. Costs of Imposing Monetary Sanctions 4. Self-Reporting of Violations 5. General Enforcement 6. Insurance against Sanctions 7. Sanctions for Repeat Offenders Chapter 23. Incapacitation, Rehabilitation, and retribution 1. Incapacitation 2. Rehabilitation 3. Retribution Chapter 24. Criminal law 1. Description of the Criminal Law 2. Explanation for Criminal Law 3. Optimal Use of Imprisonment Reviewed 4. Principles of Criminal Law
Table of Comments Economic Analysis of Public Law Enforcement and Criminal Law Chapter 20. Deterrence with Monetary Sanctions 1. Certain Enforcement: Basic Theory of Liability 2. Law Enforcement with a Probability: The Optimal Probability and Magnitude of Sanctions 3. Synopsis Chapter 21. Deterrence with Nonmonetary Sanctions 1. Certain Enforcement with Nonmonetary Sanctions: Basic Theory of Liability 2. The Optimal Probability and Magnitude of Nonmonetary Sanctions 3. When Nonmonetary Sanctions Are Optimal to Employ 4. Joint Use of Nonmonetary and Monetary Sanctions 5. Different Types of Nonmonetary Sanctions Chapter 22. Extensions of the Theory of Deterrence 1. Individual Deterrence 2. Marginal Deterrence 3. Costs of Imposing Monetary Sanctions 4. Self-Reporting of Violations 5. General Enforcement 6. Insurance against Sanctions 7. Sanctions for Repeat Offenders Chapter 23. Incapacitation, Rehabilitation, and Retribution 1. Incapacitation 2. Rehabilitation 3. Retribution Chapter 24. Criminal Law 1. Description of the Criminal Law 2. Explanation for Criminal Law 3. Optimal Use of Imprisonment Reviewed 4. Principles of Criminal Law
Summary Table of Contents of Foundations of Economic Analysis of Law (forthcoming 2003, Harvard University Press) Chapter 1. Introduction Part One. Property Law Chapter 2. Definition, Justification, and Emergence of Property Rights Chapter 3. Division of Property Rights Chapter 4. Acquisition and Transfer of Property Chapter 5. Conflict and Cooperation in the Use of Property: The Problem of Externalities Chapter 6. Public Property Chapter 7. Property Rights in Information Part Two. Accident Lnw Chapter 8. Liability and Deterrence: Basic Theory Chapter 9. Liability and Deterrence: Firms Chapter 10. Extensions of the Analysis of Deterrence Chapter 11. Liability, Risk-bearing, and Insurance Chapter 12. Liability and Administrative Costs Part Three. Contract Law Chapter 13. Overview of Contracts hapter 14 Chapter 15. Production Contracts Chapter 16. Other Types of Contract Part Four. Litigation and the Legal process Chapter 17. Basic Theory of Litigation Chapter 18. Extensions of the Basic Theory Chapter 19. General Topics on the Legal Process Part Five Public Law Enforcement and Criminal Law Chapter 20 Deterrence with Monetary Sanctions Chapter 21. Deterrence with Nonmonetary Sanctions Chapter 22. Extensions of the Theory of Deterrence Chapter 23. Incapacitation, Rehabilitation, and Retribution Chapter 24. Criminal Law Part Six. General Structure of the law Chapter 25. The General Structure of Legal Intervention and Its Optimality Part Seven Welfare Economics, Morality, and the Law Chapter 26. Welfare Economics and morality f law Chapter 28. Income Distributional Equity and the law Chapter 29. Concluding Observations about the Economic Analysis of La
Summary Table of Contents of Foundations of Economic Analysis of Law (forthcoming 2003, Harvard University Press) Chapter 1. Introduction Part One. Property Law Chapter 2. Definition, Justification, and Emergence of Property Rights Chapter 3. Division of Property Rights Chapter 4. Acquisition and Transfer of Property Chapter 5. Conflict and Cooperation in the Use of Property: The Problem of Externalities Chapter 6. Public Property Chapter 7. Property Rights in Information Part Two. Accident Law Chapter 8. Liability and Deterrence: Basic Theory Chapter 9. Liability and Deterrence: Firms Chapter 10. Extensions of the Analysis of Deterrence Chapter 11. Liability, Risk-bearing, and Insurance Chapter 12. Liability and Administrative Costs Part Three. Contract Law Chapter 13. Overview of Contracts Chapter 14. Contract Formation Chapter 15. Production Contracts Chapter 16. Other Types of Contract Part Four. Litigation and the Legal Process Chapter 17. Basic Theory of Litigation Chapter 18. Extensions of the Basic Theory Chapter 19. General Topics on the Legal Process Part Five. Public Law Enforcement and Criminal Law Chapter 20. Deterrence with Monetary Sanctions Chapter 21. Deterrence with Nonmonetary Sanctions Chapter 22. Extensions of the Theory of Deterrence Chapter 23. Incapacitation, Rehabilitation, and Retribution Chapter 24. Criminal Law Part Six. General Structure of the Law Chapter 25. The General Structure of Legal Intervention and Its Optimality Part Seven. Welfare Economics, Morality, and the Law Chapter 26. Welfare Economics and Morality Chapter 27. Implications for the Analysis of Law Chapter 28. Income Distributional Equity and the Law Chapter 29. Concluding Observations about the Economic Analysis of Law
Economic Analysis of Public law enforcement and criminal law (part of Foundations of Economic Analysis of Law Steven shavell C2003. Steven Shavell. All Rights Reserved Chapter 20 Deterrence with Monetary Sanctions The topic addressed here is the control of undesirable acts by the state through the use, or threatened use, of monetary sanctions. That is, the general subject is the deterrence of undesirable behavior through the use of monetary sanctions In the first part of the chapter, I assume for simplicity that monetary sanctions will apply with certainty--that all parties to whom a rule should apply will be brought before social authorities and bear the intended sanctions. Then, in the second part, I assume that sanctions apply only with a probability. There I examine the use of sanctions assuming that the public must incur enforcement expense to locate and/or to convict and ultimately to penalize parties who should bear sanctions. The principal problems for society that are studied are the choice of the level of enforcement effort- which determines the probability of penalizing parties-and the choice of the magnitude of sanctions so as to maximize social welfare For convenience, I focus on the case in which parties are risk-neutral, so that parties will commit an act if the benefit to them from so doing exceeds the expected sanction. However, I also examine the case in which parties are risk-averse. In the risk-neutral case, social welfare is assumed to equal the gains parties obtain from acts, less the harm done by acts, less the costs of enforcement; in the risk-averse case the measure of social welfare also incorporates the disutility of risk-bearing. By the costs of enforcement, I mean the expenses of apprehending and convicting violators, but I assume that there is no resource cost associated with the actual imposition of monetary sanctions. This assumption is made to capture the important point that the payment of a fine is, in itself, only a transfer of purchasing pov d to expenditure of real resources. (In contrast, the imposition of the nonmonetary sanction of imprisonment involves substantial direct costs. In the next chapter, the significance of this difference will be emphasized. Of course, in fact the imposition of monetary sanctions does involve social costs, such as those involved in locating a person s assets and collecting a fine; this issue will be discussed in section 3 of chapter 22
Chapter 20 – Page 1 Economic Analysis of Public Law Enforcement and Criminal Law (part of Foundations of Economic Analysis of Law) Steven Shavell ©2003. Steven Shavell. All Rights Reserved. Chapter 20 Deterrence with Monetary Sanctions The topic addressed here is the control of undesirable acts by the state through the use, or threatened use, of monetary sanctions. That is, the general subject is the deterrence of undesirable behavior through the use of monetary sanctions. In the first part of the chapter, I assume for simplicity that monetary sanctions will apply with certainty -- that all parties to whom a rule should apply will be brought before social authorities and bear the intended sanctions. Then, in the second part, I assume that sanctions apply only with a probability. There I examine the use of sanctions assuming that the public must incur enforcement expense to locate and/or to convict and ultimately to penalize parties who should bear sanctions. The principal problems for society that are studied are the choice of the level of enforcement effort – which determines the probability of penalizing parties -- and the choice of the magnitude of sanctions, so as to maximize social welfare. For convenience, I focus on the case in which parties are risk-neutral, so that parties will commit an act if the benefit to them from so doing exceeds the expected sanction. However, I also examine the case in which parties are risk-averse. In the risk-neutral case, social welfare is assumed to equal the gains parties obtain from acts, less the harm done by acts, less the costs of enforcement; in the risk-averse case the measure of social welfare also incorporates the disutility of risk-bearing. By the costs of enforcement, I mean the expenses of apprehending and convicting violators, but I assume that there is no resource cost associated with the actual imposition of monetary sanctions. This assumption is made to capture the important point that the payment of a fine is, in itself, only a transfer of purchasing power, as opposed to an expenditure of real resources.1 (In contrast, the imposition of the nonmonetary sanction of imprisonment involves substantial direct costs. In the next chapter, the significance of this difference will be emphasized.) 1 Of course, in fact the imposition of monetary sanctions does involve social costs, such as those involved in locating a person=s assets and collecting a fine; this issue will be discussed in section 3 of chapter 22