A Swiss court has slapped a wealthy speeder with a chalet-sized fine — a full $290,000.Greg Mankiw wonders how optimal it is to base fines on wealth? His first thought is no (how surprising!) He writes: "We fine activities that have negative externalities, such as putting others at risk. If X is the size of the externality, and p is the probability of being caught, then the optimal fine is X/p. That will give people the right incentive to produce the optimal quantity of the externality. Note that the rich may choose to speed more, but that is optimal. " But then he argues that becuz sometimes tickets are not deserved, there is a theoretical case for wealth dependent fines. Doesn't he miss the point?
Judges at the cantonal court in St. Gallen, in eastern Switzerland, based the record-breaking fine on the speeder's estimated wealth of over $20 million.
A statement on the court's Web site says the driver — a repeat offender — drove up to 57 kilometers an hour faster than the 80-kilometer-an-hour limit.
If the amount of the fine is supposed to act as a deterrent from speeding, then it should be significant for rich people. For them, feeling the sound of their new Ferrari is well worth the $1000 fine. If fines were $10,000, for everybody, they would deter anyone from speeding. But then when poor people are caught and don't have the money to pay, it becomes very complicated legally, they go to court, they lose their license, the administrative procedure is a nightmare etc... In fact, it would be so complicated that the law makes no sense as it is imnpossible to enforce. Hence, better to have a fine they can pay, and and no enforcement problems.
All in all, I say fines proportional to wealth make a lot of sense. No?