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The Importance of Being Honest

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  • MURRAY C. KEMP
  • YEW‐KWANG NG

Abstract

Given individual propensities to cheat (stealing, overcharging, etc.), the optimality conditions for the amount of resources devoted to law enforcement and for the severity of penalties on convicted cheats are derived. 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. These conclusions seem to apply to the practical case of metered parking violation.

Suggested Citation

  • Murray C. Kemp & Yew‐Kwang Ng, 1979. "The Importance of Being Honest," The Economic Record, The Economic Society of Australia, vol. 55(1), pages 41-46, March.
    • Handle: RePEc:bla:ecorec:v:55:y:1979:i:1:p:41-46
    DOI: 10.1111/j.1475-4932.1979.tb02200.x
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    References listed on IDEAS

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    1. Kemp, Murray C., 1976. "Smuggling and optimal commercial policy," Journal of Public Economics, Elsevier, vol. 5(3-4), pages 381-384.
    2. Yew-Kwang Ng, 1975. "Bentham or Bergson? Finite Sensibility, Utility Functions and Social Welfare Functions," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 42(4), pages 545-569.
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    Cited by:

    1. Reinganum, Jennifer F. & Wilde, Louis L., 1985. "Income tax compliance in a principal-agent framework," Journal of Public Economics, Elsevier, vol. 26(1), pages 1-18, February.
    2. Geoffrey Fishburn, 1979. "On How to Keep Tax Payers Honest (or almost so)," The Economic Record, The Economic Society of Australia, vol. 55(3), pages 267-270, September.
    3. Holger C. Wolf, 1993. "Anti-Tax Revolutions and Symbolic Prosecutions," NBER Working Papers 4337, National Bureau of Economic Research, Inc.

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