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Penalty lottery

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  • Duk Gyoo Kim

Abstract

To control sequential public bad productions under imperfect monitoring, this paper proposes a penalty lottery: a violator passes the responsibility of the fine to the next potential violator with some probability and pays all the accumulated fines with the complementary probability. The penalty lottery does not merely impose extreme fines because an absorbing state is practically unreachable. It self‐selects people more willing to produce public bads and endogenously imposes the larger expected fines on them. It has advantages over the day‐fine system in which the fine depends on the offender's daily income. Experimental evidence is consistent with the proposed theoretical predictions.

Suggested Citation

  • Duk Gyoo Kim, 2023. "Penalty lottery," Scandinavian Journal of Economics, Wiley Blackwell, vol. 125(4), pages 997-1026, October.
    • Handle: RePEc:bla:scandj:v:125:y:2023:i:4:p:997-1026
    DOI: 10.1111/sjoe.12528
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