Punishing the Innocent along with the Guilty: The Economics of Individual versus Group Punishment

Standard models of law enforcement involve the apprehension and punishment of a single suspect, but in many contexts, punishment is actually imposed on an entire group known to contain the offender. The advantages of .group punishment. are that the offender is punished with certainty and detection costs are saved. The disadvantage is that innocent individuals are punished. We compare individual and group punishment when social welfare depends on fairness, and when it depends on deterrence. We show that group punishment may dominate in the former case if the detection technology is ineffective but never in the latter case. We discuss our results in the context of several examples.

The Economics of Citation

In this paper, we study the citation decision of a scientific author. By citing a related work, authors can make their arguments more persuasive. We call this the correlation effect. But if authors cite other work, they may give the impression that they think the cited work is more competent than theirs. We call this the reputation effect. These two effects may be the main sources of citation bias. We empirically show that there is a citation bias in Economics by using data from RePEc. We also report how the citation bias differs across regions (U.S., Europe and Asia).

The Economics of Incentive-Based Health Care Plans

Medical savings accounts (MSAs) belong to a larger class of incentive-based health care plans. Using a model that allows the consumer to invest in healthy activities, we examine the efficiency properties of incentive plans and compare them to traditional full- coverage and deductible plans, under both experience rating and community rating. The model also is extended to include utilization of preventive health care. Properly constructed incentive plans have the capacity to induce socially efficient levels of healthy activities and preventive care, raising the expected wealth of consumers without reducing insurers' profits.

Some Law and Economics of Historic Shipwrecks

This paper examines how US and proposed international law relate to the recovery of archaeological data from historic shipwrecks. It argues that US federal admiralty law of salvage gives far less protection to historic submerged sites than do US laws protecting archaeological sites on US federal and Indian lands. The paper offers a simple model in which the net present value of the salvage and archaeological investigation of an historic shipwreck is maximized. It is suggested that salvage law gives insufficient protection to archaeological data, but that UNESCO's Convention on the Protection of the Underwater Cultural Heritage goes too far in the other direction. It is also suggested that a move towards maximizing the net present value of a wreck would be promoted if the US admiralty courts explicitly tied the size of salvage awards to the quality of the archaeology performed.

Private Property, Public Use, and Just Compensation: The Economics of Eminent Domain

The eminent domain clause of the U.S. Constitution concerns the limits of the government's right to take private property for public use. The economic literature on this issue has examined (1) the proper scope of this power as embodied by the 'public use' requirement, (2) the appropriate definition, and implications, of 'just compensation,' and (3) the impact of eminent domain on land use incentives of owners whose land is subject to a taking risk. This essay reviews this literature and draws implications for our understanding of eminent domain law.

Murky Waters: The Law and Economics of Salvaging Historic Shipwrecks

The salvage of historic shipwrecks involves a debate between salvors, who wish to maximize profit, and archeologists, who wish to preserve historical value. Traditionally, salvage of shipwrecks has been governed by admiralty law, but the Abandoned Shipwreck Act of 1987 transferred title of historically important wrecks in U.S. waters to the state in whose waters the wreck is found, thereby abrogating admiralty law. This paper examines incentives to locate and salvage historic wrecks under traditional admiralty law and proposes an efficient reward scheme. It then re-considers current U.S. and international law in light of the results.

Credible Criminal Enforcement

Economic models of crime and punishment implicitly assume that the government can credibly commit to the fines, sentences, and apprehension rates it has chosen. We study the government's problem when credibility is an issue. We find that several of the standard predictions of the economic model of crime and punishment are robust to commitment, but that credibility may in some cases result in lower apprehension rates, and hence a higher crime rate, compared to the static version of the model.

Criminal Solicitation, Entrapment, and the Enforcement of Law

This paper examines the optimal use of criminal solicitation as a law enforcement strategy. The benefits are greater deterrence of crime (due to the greater likelihood of apprehension), and the savings in social harm as some offenders are diverted away from committing actual crimes through solicitation. The costs are the expense of hiring undercover cops and the greater likelihood of punishment. The optimal use of solicitation balances these factors. The paper also examines the justification for the entrapment defense, which exonerates those caught in a criminal solicitation but who otherwise had no predisposition to commit a crime.

Criminal Solicitation, Entrapment, and the Enforcement of Law

This paper examines the optimal use of criminal solicitation as a law enforcement strategy. The benefits are greater deterrence of crime (due to the greater likelihood of apprehension), and the savings in social harm and apprehension costs as some offenders are diverted away from committing actual crimes through solicitation. The costs are the expense of hiring undercover cops and the greater likelihood of punishment. The optimal use of solicitation balances these factors. The paper also examines the justification for, and impact of, the entrapment defense, which exonerates those caught in a solicitation but otherwise not predisposed to commit a crime.

Deterrence and Incapacitation: Towards a Unified Theory of Criminal Punishment

Economic models of crime have focused primarily on the goal of deterrence; the goal of incapacitation has received much less attention. This paper adapts the standard deterrence model to incorporate incapacitation. When prison only is used, incapacitation can result in a longer or a shorter optimal prison term compared to the deterrence-only model. It is longer if there is underdeterrence, and shorter if there is overdeterrence. In contrast, when a fine is available and it is not constrained by the offender's wealth, the optimal prison term is zero. Since the fine achieves first-best deterrence, only efficient crimes are committed and hence, there is no gain from incapacitation.

A Simple Theory of Increasing Penalties for Repeat Offenders

A feature of many penal codes is that punishments are more severe for repeat offenders, yet economic models have had a hard time providing a theoretical justification for this practice. This paper offers an explanation based on the wage penalty suffered by individuals convicted of crime. While this penalty probably deters some first-timers from committing crimes, it actually hampers deterrence of repeat offenders because of their diminished employments opportunities. We show that in this setting, an escalating penalty scheme is optimal and time consistent.

Penalty Enhancement for Hate Crimes: An Economic Analysis

The issue of bias-motivated crimes has attracted consderable attention in recent years. In this paper, we develop an economic framework to analyze penalty enhancements for bias-motivated crimes. We extend the standard model by introducing two different groups of potential victims of crime, and assume that a potential offender's benefits from a crime depend on the group to which the victim belongs. We begin with the assumption that the harm to an individual victim from a bias-motivated crime is identical to that from an equivalent non-hate crime. Nonetheless, we derive the result that a pattern of crimes disproportionately targeting an identifiable group leads to greater social harm. This conclusion follows both from a model where disparities in groups' victimization probabilities lead to social losses due to fairness concerns, as well as a model where potential victims have the opportunity to undertake socially costly victimization avoidance activities. In particular, penalty enhancements can reduce the incentives for avoidance activity, and thereby protect the networks of profitable interactions that link members of different groups. We also argue that those groups that are covered by hate crime statutes tend to be those whose characteristics make it especially likely that penalty enhancement is socially optimal. Finally, we consider a number of other issues related to hate crimes, including teh choice of sanctions from behind a Rawlsian 'veil of ignorance' concerning group identity.

Ethnicity, Governance and the Provision of Public Goods

Ethnicity is an important institution and one that impacts on the quality of governance. This paper focuses on the behavior of ethnic groups and specifically on their impact on the provision of public goods. The paper shows that ethnic heterogeneity results in under-provision of non-excludable public goods. On the other hand, such societies associate with provision of patronage goods. The paper proposes some areas of research such the economics of ethnic institutions, empirical evidence of the role ethnic groups on public goods provision, tax compliance and institutional reforms to improve governance.

The Secret Life of Mundane Transaction Costs

Transaction costs, one often hears, are the economic equivalent of friction in physical systems. Like physicists, economists can sometimes neglect friction in formulating theories; but like engineers, they can never neglect friction in studying how the system actually does let alone should work. Interestingly, however, the present-day economics of organization also ignores friction. That is, almost single-mindedly, the literature analyzes transactions from the point of view of misaligned incentives and (especially) transaction-specific assets. The costs involved are certainly costs of running the economic system in some sense, but they are not obviously frictions. Stories about frictions in trade are not nearly as intriguing as stories about guileful trading partners and expensive assets placed at risk. But I will argue that these seemingly dull categories of cost what Baldwin and Clark (2003) call mundane transaction costs actually have a secret life. They are at least as important as, and quite probably far more important than, the more glamorous costs of asset specificity in explaining the partition between firm and market. These costs also have a secret life in another sense: they have a secret life cycle. I will argue that these mundane transaction costs provide much better material for helping us understanding how the boundaries among firms, markets, and hybrid forms change over time.

Schumpeter and Personal Capitalism

In an earlier paper, I criticized Schumpeter's account of the obsolescence of the entrepreneur in Capitalism, Socialism, and Democracy. That account rests, I argued, on a confusion about the nature of scientific knowledge and its role in the competences of the firm. This paper is an attempt to take up the argument again, moving it away from the doctrine-historical into the provinces of the economics of organization. Drawing on the work of Max Weber, as well as on a case study of the Swiss watch industry, the paper argues for the ineradicable role of personal capitalism, properly understood.