Rewarding Policemen Increases Crime. Another Surprising Result from the Inspection Game

Inspection games are 2x2 games in which one playermust decide whether to inspect the other player, who in turnmust decide whether to infringe a norm or a regulation.Inspection games have a single, mixed strategy Nashequilibrium, which has counter-intuitive comparative staticsproperties. This result has been used by Tsebelis (1989) andHoller (1992) to show that the economic approach to lawenforcement is not likely to generate clear-cut predictions.In this paper I discuss a variant of the inspection game inwhich the inspector can act as a Stackelberg leader. I willalso show that this version of the inspection game hascounter-intuitive comparative statics properties. Inparticular, increasing inspector’s incentives to enforce thelaw increases the frequency of law infractions.