The theory of optimal fines

by on January 7, 2010 at 5:19 pm in Law | Permalink

A Swiss court has slapped a wealthy speeder with a chalet-sized fine – a full $290,000.

Judges at the cantonal court in St. Gallen, in eastern Switzerland, based the record-breaking fine on the speeder's estimated wealth of over $20 million.

A statement on the court's Web site says the driver – a repeat offender – drove up to 35 miles an hour (57 kilometers an hour) faster than the 50-mile-an-hour (80-kilometer-an-hour) limit.

Here is the full article and I thank Daniel Lippman for the pointer.

farmer January 7, 2010 at 5:21 pm

there was a similar fine in finland

http://news.bbc.co.uk/2/hi/business/3477285.stm

finland has been doing this awhile. i remember of one the mobile phone ceo’s getting dinged 20k or somewhere there abouts

LoneSnark January 7, 2010 at 6:04 pm

I don’t think so. Here in the states he would have probably found himself in jail for such repeated offenses. I suppose it would be fair if he had been offered a choice of either the high fine or jail time, say two weeks or so. He may still have chosen the fine.

david January 7, 2010 at 6:26 pm

@ Attila Smith

Why? Following the optimal-punishment logic here – a rich man receives a larger fine than a poor man, so shouldn’t a rich man receive a worse jail than a poor man? After all, he can buy himself some compensatory pleasures once he’s out.

(*this is not a serious suggestion)

Ben January 7, 2010 at 7:18 pm

I agree with Alan; fines that adjust with wealth are just like an additional income tax on an already progressive system and the resulting incentives are similar.

Jay January 7, 2010 at 7:49 pm

Say what you want, but this is discrimination akin to levying a $1,000 fine on a minority and a $500 fine on someone in the majority for a similar offense.

Minority/majority paradigms include but not limited to (in the U.S.)…
rich/poor
black/white
gay/straight
atheist/religious
politically connected/people getting screwed
residents without a Social Security Number/residents with a Social Security Number

Colin January 7, 2010 at 8:26 pm

Jay, so the discriminating factor here is that the fine is levied because he’s more capable to pay? Income tax is discrimination?

It is not akin because the fine is based on wealth not the color of skin.

I have to admit that this is the most, for lack of a better word, perverse use of “discrimination” I have ever read. Being a white male in Iowa the extent of discrimination I’ve experienced is ageism but misuse of the word in this matter, I’m sure, makes people who experience true discrimination speechless.

Making “colored people” use a different bathroom is really the same as making a rich person pay a larger fine for doing something that was knowingly illegal? Just wow.

Colin January 7, 2010 at 9:04 pm

JamieNYC, I don’t know that Tyler’s motivation is all that relevant to the discussion/comments. Are fines deterrence or are they redresses for breaking statutes?

You cannot make money without a society so what’s the problem with society taking stronger measures against those those are clearly not deterred by previous speeding tickets?

srb January 8, 2010 at 12:25 am

Though jail times should be shorter for richer people then, to create the same equivalent level of deterrence. Presumably richer people enjoy their outside life more and earn more outside of prison than do poor people, so a shorter time in prison away from their fabulous life is equivalent to a long time in prison for someone living in squalor. I know I’d be more likely to try to avoid jail if it meant giving up a mansion instead of giving up a trailer or shared ghetto apartment.

momama January 8, 2010 at 5:15 am

So if you’re rich, you can do as you please?

In Norway we had a case a few years back regarding parking fines. A wealthy man (dollar multi-millionaire) had accumulated a large amount of parking fines over a short period of time. The fine was for him a trivial amount (it is a fixed sum), and he preferred to not waste his time looking for available parking lots. Instead he just parked wherever he wanted, and payed the fine. After this case came up, they made a rule change. Now, fines have a certain “decay time”, and if you get too many in a short time, you temporarily lose your license.

Zamfir January 8, 2010 at 7:36 am

Rich people have important places to be, fast.
My rule of thumb is that rich people are like normal people, but with more money.

Russ R. January 8, 2010 at 9:58 am

Advocates of income or wealth adjusted fines to create an equivalent level of deterrence, to be logically consistent should similarly be in favour of income or wealth adjusted incentives.

For example, if the government is going to offer a financial rebate to encourage energy efficiency or recycling (or whatever else it deems to be ‘good’) then it should offer a bigger rebate for the wealthy in order to create the same level of incentive.

If you’re in favour of bigger fines for the rich, but not bigger incentive rebates, then you should probably admit that the “equivalent deterrance” argument is just a rationalization to cover up a secret desire to “stick it to the rich”.

Norman Pfyster January 8, 2010 at 10:22 am

Isn’t this just the same logic as “judgment-proof” remedies?

RV1984 January 8, 2010 at 12:56 pm

Perhaps driver’s license points systems could (do) help with this by establishing a common ‘right to drive’ currency separate from wealth. This puts all drivers at an initially equal footing. When you lose enough points due to speeding, you lose the right to drive regardless of your ability to pay any associated fines.

However, I am not sure how that such a system can be generalized; we can’t (?) have separate ‘rights currencies’ for each area of activity and the law.

Is there something unique about driving (Public roads? Clearly identifiable activity?) that makes a point system work in that context but not in others?

Florian January 8, 2010 at 2:26 pm

@RV1984

Germany has that kind of system, you get fined a fixed amount and get penalty points if you have enough points you losse your license.

Steko January 8, 2010 at 4:17 pm

Mankiw has a well reasoned take:

“My first thought is no. We fine activities that have negative externalities, such as putting others at risk. If X is the size of the externality, and p is the probability of being caught, then the optimal fine is X/p. That will give people the right incentive to produce the optimal quantity of the externality. Under this policy, the rich may choose to speed more, but that is optimal. If we have an optimal carbon tax, the rich will produce more carbon too. Optimal pigovian taxes do not eliminate income effects.

On further reflection, however, I think a case can be made, at least theoretically, to support the judges’ ruling. First, assume that the negative externalities are very great, so the optimal quantity of the externality is about zero. By itself, that argues for a large fine, not a wealth-dependent one. But then add another assumption: Suppose there is some small probability that an innocent person will be found guilty because of a rogue, or simply a mistaken, policeman. This possibility, together with risk aversion, would induce us to temper how large the fine is. And this tempering of the large fine would seem to be less for richer taxpayers: Because the mistaken ticket is a proportionately smaller fraction of their wealth, we need to worry less about the uncertainty large fines impose. The result is larger fines for richer offenders.”

Ian N January 10, 2010 at 4:09 am

@Russ: That’s true, except that the government’s budget is also an issue; fining rich people more reduces speeding and helps the budget. Raising incentive payments increases the desired behavior but hurts the budget.

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