DP3667 | Subgame Perfect Punishment for Repeat Offenders

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20/11/2002

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Abstract

First we show that for wealth-constrained agents who may commit an act twice, the optimal sanctions are the offender's entire wealth for the first crime, and zero for the second. Then we ask whether this decreasing sanction scheme is subgame perfect (time consistent), i.e., does a rent-seeking government stick to this sanction scheme after the first crime has occurred? If the benefit and/or the harm from the crime are not too large, this is indeed the case; otherwise, equal sanctions for both crimes are optimal.