A Signaling Theory of Nonmonetary Sanctions

Massimo d'Antoni , Roberto Galbiati (1, 2)

1 Bocconi University [Milan, Italy]
2 EUI - European University Institute

It is a widely accepted conclusion of the economic literature on optimal law enforcement that nonmonetary sanctions should be introduced only when fines have been used up to their maximum extent. In this paper it is shown that when the sanctioning policy conveys information about the harmfulness of the sanctioned behavior, the use of nonmonetary sanctions can be optimal even when the monetary fine is not maximal. The argument is formalized in a model with rational but uninformed individuals, who know that the enforcer has better information about the harmfulness of actions but are uncertain about the true objectives of the enforcer.

Keywords: Optimal deterrence; Nonmonetary sanctions

Domains: Humanities and Social Sciences; Sociology; Humanities and Social Sciences; Law

Massimo d'Antoni, Roberto Galbiati. A Signaling Theory of Nonmonetary Sanctions. International Review of Law and Economics, 2007, 27, pp.204 - 218. ⟨10.1016/j.irle.2007.06.008⟩. ⟨hal-03608095⟩