The Economic Theory of Public Enforcement of Law

This article surveys the theory of the public enforcement of law — the use of public agents (inspectors, tax auditors, police, prosecutors) to detect and to sanction violators of legal rules. We first present the basic elements of the theory, focusing on the probability of imposition of sanctions, the magnitude and form of sanctions, and the rule of liability. We then examine a variety of extensions of the central theory, concerning accidental harms, costs of imposing fines, errors, general enforcement, marginal deterrence, the principal-agent relationship, settlements, selfreporting, repeat offenders, imperfect knowledge about the probability and magnitude of fines, and incapacitation. * Stanford Law School and National Bureau of Economic Research; and Harvard Law School and National Bureau of Economic Research, respectively. Research on this article was supported by The Lynde and Harry Bradley Foundation, the John M. Olin Foundation, the John Simon Guggenheim Memorial Foundation, the Center for Advanced Study in the Behavioral Sciences (through National Science Foundation grant #SBR-960123), and the law and economics programs at Stanford Law School and Harvard Law School. We received able research assistance from Alexander Gould, Janine Scancarelli, and Timothy Stanley, and helpful comments from Daniel Klerman, John Pencavel, and participants at various seminars. We are at work on a book-length treatment of the public enforcement of law.