“Reflections on Optimal Punishment, Or: Should the Rich Pay Higher Fines?”, 1981 ():
Economic analysis of law seems to suggest that the pecuniary equivalent of the combination of probability and punishment imposed on a criminal ought to be equal to the damage done by the crime and independent of the criminal’s characteristics, thus preventing all “inefficient” crimes (for which the benefit to the criminal is less than the cost imposed) and only such crimes.
It is shown that both this rule and the alternative principle of “enough punishment to deter” are special cases of a more general rule which may be stated as “punishment equal to the net costs of altering the level of punishment so as to generate one more crime”; the result may be higher or lower than the damage done by the crime.
The analysis is applied to show that for crimes where either the “demand” for the crime (by potential criminals) or the cost of imposing punishment varies with the criminal’s income, the pecuniary equivalent of the punishment should also vary with income. Whether rich or poor should pay higher fines turns ou to be indeterminate save in special cases.
Some of the empirical implications of the analysis are explored, and some attempt is made to use data to estimate some of the parameters of the models that are used in the analysis.