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Explaining Escalating Fines and Prices: The Curse of Positive Selection

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  • Buehler, Stefan
  • Nicolas Eschenbaum

Abstract

This paper shows that escalating fines emerge in a generalized version of the canonical Becker (1968) model if the authority (i) does not fully credit offender gains to social welfare, and (ii) lacks commitment ability. We demonstrate that the authority has no incentive to increase the fine for repeat offenders because of their positive selection. Instead, escalation is driven by the authority's incentive to reduce the fine for low-value offenders in the future and redistribute additional offender gains to society. Our analysis nests optimal law enforcement with uncertain detection and behavior-based monopoly pricing with imperfect customer recognition.

Suggested Citation

  • Buehler, Stefan & Nicolas Eschenbaum, 2018. "Explaining Escalating Fines and Prices: The Curse of Positive Selection," Economics Working Paper Series 1807, University of St. Gallen, School of Economics and Political Science.
    • Handle: RePEc:usg:econwp:2018:07
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    References listed on IDEAS

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    Cited by:

    1. Buechel, Berno & Feess, Eberhard & Muehlheusser, Gerd, 2020. "Optimal law enforcement with sophisticated and naïve offenders," Journal of Economic Behavior & Organization, Elsevier, vol. 177(C), pages 836-857.

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    More about this item

    Keywords

    Escalation; repeat offenders; behavior-based pricing; deterrence;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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