The scope of punishment: an economic theory

The harm caused by many acts is not certain but probabilistic. Current public enforcement of the law combines harm-based sanctions (usually in criminal law) with act-based sanctions (very common in administrative law and regulation). We propose an economic theory of the choice between harm-based and act-based sanctions in public enforcement. The efficiency of act-based versus harm-based sanctions is analyzed and a typology of the determinants is drawn up. Our model suggests that harm-based sanctions are more efficient when (1) acquiring information about the act is important, (2) engaging in harm avoidance activities is advisable, (3) judgment-proofness is not a very significant problem, (4) punishment is especially costly, (5) changes in law are expensive or difficult to negotiate and (6) on average, potential criminals are better informed than the government about losses for society. Legal policy implications are discussed.