MARGINAL DETERRENCE IN ENFORCEMENT OF LAW

We characterize optimal enforcement in a setting in which individuals can select among various levels of some activity, all of which are mon itored at the same rate but may be prosecuted and punished at varying rates. For less harmful acts, marginal expected penalties ought to fal l short of marginal harms caused. Indeed, some range of very minor act s should be legalized. For more harmful acts, whether marginal expecte d penalties should fall short of, or exceed, marginal harms depends on the balance between monitoring and prosecution/punishment costs. We a lso explore how the optimal enforcement policy varies with changes in these costs.