Abstract
The harm caused by many acts is not certain but probabilistic. Current public enforcement of the law combines harm-based sanctions (usually in criminal law) with act-based sanctions (very common in administrative law and regulation). We propose an economic theory of the choice between harm-based and act-based sanctions in public enforcement. The efficiency of act-based versus harm-based sanctions is analyzed and a typology of the determinants is drawn up. Our model suggests that harm-based sanctions are more efficient when (1) acquiring information about the act is important, (2) engaging in harm avoidance activities is advisable, (3) judgment-proofness is not a very significant problem, (4) punishment is especially costly, (5) changes in law are expensive or difficult to negotiate and (6) on average, potential criminals are better informed than the government about losses for society. Legal policy implications are discussed.
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Notes
We should not leave the impression that all criminal punishment is harm-based. A notable exception are attempts; also, not all administrative and regulatory punishment is act-based; consider environmental liability.
Therefore tort law is not addressed by the model. See, for example, Miceli and Segerson (2005) for the possibility of introducing act-based enforcement in torts.
Our paper focuses on government enforcement of public law. The scope and the role of private parties in the enforcement of public law vary across legal systems. The similarities to negligence liability (harm-based) and strict liability (act-based) are significant. However, the appropriate balance between public and private law is beyond the discussion of this paper.
For an extensive review of the literature on legal rules characteristics, see Kaplow (2000). Kaplow (1992) presents a detailed analysis of legal rules based on the distinction between rules and standards to the extent to which efforts to give content to the law are undertaken before or after individuals’ actions. Some uncertainty is left ex ante. In our case, an act-based policy identifies a certain conduct as prohibited. On the other hand, a harm-based policy imposes a fine when harm occurs, requiring individuals to make use of their own information regarding the dangerousness of the activity.
However, there the main purpose of act-based versus harm-based sanctions is to choose the appropriate timing for intervention; pure prevention, after the act has been committed, or only after the harm has been observed. The purpose of the present paper is not to choose optimal timing for intervention, but to highlight the determinants of successful law enforcement, in particular the enforcer’s own constraints (cost of imposing sanctions) and the characteristics of the potential injurers (cost of imposing sanction, risk aversion, limited assets).
By focusing on the distinction between private action versus public enforcement, the main issues there are the interaction of compensation (see for example Wittman 1977, for a discussion on the behavioral effect of compensation of victims versus ex ante fines), the actual report of the offense or damage (in Shavell 1984a, b; Kolstad et al. 1990; Shavell 1993 damages are not always reported; in Schmitz 2000 it has no impact since punitive damages are allowed; Innes 2004 analyzes a particular case when the occurrence of accidents is rarely discovered while a negligent conduct is paradoxically always sanctioned), the costs of both regimes (see for example Wittman 1977; Mookherjee and Png 1992; Innes 2004), and the level of care taken ex ante. More fundamentally, these are models of choice between private and public law enforcement (in most papers, public law enforcement is loosely defined without any particular attention to criminal versus administrative law). In contrast, we discuss unilateral accidents (consequently, the precaution of the victim has no impact and thus the compensation effect does not matter for purposes of efficient deterrence) where the choice to undertake an activity is binary (i.e. whether to commit or not a harmful act) and the sanction is publicly enforced.
However, we do not examine the desirability of the punishment of attempts per se; instead, we include the possibility of punishing attempts when we consider act-based sanctions. In this sense, under an act-based sanction, an attempt is punished with the exact same sanction as a harmful offense. However, under a harm-based policy, there is no punishment for failed attempts.
In the framework of Polinsky and Shavell (2000), the probability that the act to be committed is harmful is implicitly assumed to be equal to one, as an individual chooses whether or not to commit a harmful act.
The model presupposes that the harm is caused by one activity. Alternatively, the production of harm could be derived from a combination of different activities. In this context, the standard discussion of activity levels versus precaution follows easily.
Notice that if we allow the probability to vary and be determined endogenously, under the assumptions of the model explained below, Beckerian maximal fines apply in both regimes and all our comments in the paper would be on the probability rather than on the severity of punishment.
When the government has imperfect information about the harm, we should distinguish two bodies of government, the constitutional legislator that makes a normative assessment of which regime of sanctions should prevail (by making use of social welfare maximization) and an enforcement branch that chooses the severity of punishment by maximizing expected social welfare (hence different from social welfare maximization given the imperfect information concerning the likelihood of harm).
We assume that the (fixed) cost of detection is the same under both regimes. If we assume that it is less costly to detect harm than the underlying act, we are inducing a preference against an act-based regime and favorable to the harm-based regime.
A more detailed derivation of these results is discussed by Garoupa and Obidzinski (2006). Here we provide the intuition.
We abstract here from nonmonetary sanctions. One obvious argument for nonmonetary sanctions is to overcome judgment-proofness. However, given that the number of years in jail is also constrained, a similar argument applies there.
Notice, for example, that when the probability σ e is uniformly distributed between [0,1], the average expected sanction under a harm-based regime is lower than the expected sanction under an act-based regime.
The same reasoning applies for the choice between liability versus regulation: if the regulator over (under) estimates the potential for harm, the standard will be too stringent (Shavell 1984a).
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Acknowledgements
The authors would like to thank three anonymous referees, Giuseppe Dari-Mattiacci, A. Mitchell Polinsky and Steven Shavell for very helpful comments and the seminar participants at the 21st Annual Congress of the European Economic Association, Vienna, 2006 for interesting suggestions. Roya H. Samarghandi has provided superb research assistance. Nuno Garoupa acknowledges financial support by FCT, POCI/JUR/55752/2004. The usual disclaimers apply.
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Garoupa, N., Obidzinski, M. The scope of punishment: an economic theory. Eur J Law Econ 31, 237–247 (2011). https://doi.org/10.1007/s10657-010-9172-0
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DOI: https://doi.org/10.1007/s10657-010-9172-0