Private versus Public Enforcement of Fines

Many undesirable activities are controlled by fines imposed by the government. In some contexts, such as antitrust violations and air pollution, it makes sense to consider giving the fine to a private party as an inducement for that party to discover and report the harmful behavior. This paper compares two "pure" forms of private enforcement--competitive and monopolistic-to public enforcement, allowing for the cost of enforcement to differ among the methods of enforcement. If the individuals engaging in the undesirable activity are potentially deterrable, then regardless of relative enforcement costs, private (competitive or monopolistic) enforcement leads to less enforcement than public enforcement and is socially inferior to public enforcement if the damage from the activity is sufficiently large. When. private enforcement is cheaper than public enforcement, regulating private enforcers by paying them something different than the fine for each violator detected can achieve the socially most preferred outcome in the competitive case but not in the monopolistic case. If some individuals engaging in the activity are undeterrable, these results hold if some simple additional conditions are satisfied. Also, depending on relative enforcement costs, monopolistic enforcement may result in more or less enforcement than competitive enforcement.