Fines for unequal societies

Abstract

One fourth of the 196 countries we surveyed adopts some form of day fines — that is, fines that increase with the wealth of the offender — and does so for moderate, non-monetary violations. We offer a model of optimal deterrence with decreasing marginal utility of wealth and unequal wealth distribution that rationalizes this pattern. We show that uniform fines are optimal when harm from crime is low, non-monetary sanctions when it is high, and day fines in the intermediate region. The introduction of day fines reduces the (optimal) use of non-monetary sanctions and restores deterrence for the rich, as compared to uniform fines. The scope for day fines increases with wealth inequality and decreases with the cost of wealth verification.