Explaining Escalating Prices and Fines: A Unified Approach
Type
working paper
Date Issued
2019-07
Author(s)
Abstract (De)
This paper provides an explanation for escalating prices and fines based on a unified analytical framework that nests monopoly pricing and optimal law enforcement. We show that escalation emerges as an optimal outcome if the principal (i) lacks commitment ability, and (ii) gives less than full weight to agent benefits. Escalation is driven by decreasing transfers for non-active agents rather than increasing transfers for active agents. Some forward-looking agents then strategically delay their activity, which drives a wedge between the optimal static transfer and the benefit of an indifferent agent. This wedge is the source of escalation.
Language
English
Keywords
Escalation
behavior-based pricing
repeat offenders
deterrence
HSG Classification
contribution to scientific community
Pages
26
Subject(s)
Contact Email Address
stefan.buehler@unisg.ch)
Eprints ID
257305
File(s)![Thumbnail Image]()
open.access
Name
Repeat-Offenders.pdf
Size
211.96 KB
Format
Adobe PDF
Checksum (MD5)
108a8c7d4246284bc6830f5a4427749c