Thursday, August 17, 2006

Incentives, Deterrence, and Inequality

The indispensable Radio Open Source had a fascinating program on "the value of a life" last night, featuring Kenneth Feinberg (master of the 9/11 Victims Compensation Fund) and Peter Singer. Feinberg noted that while he personally favored a more egalitarian distribution of the money, the statute authorizing the VCF forced him to make awards based on victims' expected lifetime earnings. The statute was designed to deter families from suing and attract them to a settlement. Feinberg could only effectively do so by correlating VCF awards to the types of valuation decisions juries and judges would make in similar, litigated cases.

This approach raises some interesting questions about how the legal system deals with inequality. Because of the quite varied earnings between the different victims, some had to be offered much more than others to draw them away from litigation. Should the legal system follow a similar pattern in the opposite direction? That is, should fines or other monetary penalties routinely be keyed to a violator's income?

I suppose that confiscations accompanying criminal convictions are one routine way of reflecting a convict's wealth in their punishment. Finland has pushed this type of income-based fine a bit further, with traffic fines set as a small percentage of income. I'd appreciate any advice on similar structures in American law.

Setting fines proportional to income may overcome some problems associated with classic market approaches to social problems. For example, in Aging and Old Age, Posner claims that we needn't aggressively screen out aging drivers, because the insurance market will eventually deter the most dangerous by raising their premia. But such market "signals" will inevitably become both more under- and over-inclusive as inequality increases...wealthier people will find them meaningless and poorer people will find them insurmountable barriers to driving. Fines based on income could help send a more meaningful signal.

(Photo Credit: gwENvision/Flickr)


Anonymous Kevin Wells said...

I think this is an interesting issue that presents difficulties in comprehension, and is more politically charged than one would imagine. The idea of income-based fines seems to make perfect sense, at least to me. (Granted I'm a bit further left than most.)

I remember discussing this very thing in my Intro to Sociology course. The vehemence of the anti-income-matching fines lobby was surprising.

"Just because they have more money doesn't mean that $100 is less to a rich person than to a poor person!"

Utter lack of logic aside, this was a common reaction to the idea of income-based problem. I can see shouts of "class warfare" as quite common. Making traffic tickets sting by increasing them for the rich seems to be a great idea. However, I can see now the response that this would be unequal.

"Equality" apparently means everyone pays the same, not that everyone is affected the same. If that means the rich can speed, drive drunk, or drive when old, so be it.

The problem, I believe, we get into with this is that if we start fixing the system of fines, then people might be liable to question other inherently classist aspects of the criminal justice system. Where do we stop, they will ask. A better question, I think is, how long can we go before we start ?

8/17/2006 5:51 PM  
Blogger Frank said...

thanks, Kevin!

Your insights suggest to me two reasons for the resistance to fines-proportional-to-income.

This paper suggests a distancing rationale:

In other words, given all the negative stereotypes harbored about the poor, one wants to think of oneself as rich, and thus as particularly susceptible to the "sting" of the proportional sanctions.

The other reason traces back to a classic methodological dispute in economics, over the role of "meaning" in the discipline. The charm of economics is the promise of looking at the world via a neutral viewpoint that abstracts away from contestable "meanings" and views affairs as ordered by the delinguistified steering medium of money. That "lens" has proven effective in many fields. BUt when we use market based approaches to deter negligence or otherwise shape the legal system, we must begin paying more attention to the inequalities both accommodated and reinforced in such a system.

[By the way, I hope to blog on Joan Robinson's Economic Philosophy, a classic critique of neo-classical economics, in order to develop this viewpoint.]

8/18/2006 10:51 AM  
Anonymous Anonymous said...

"Equality" is an interesting concept in this problem. Assuming the definitions of wealthy and poor are workable for argument's sake, the notion that equality involves uniformity in terms of amount would be a view that the wealthy enjoy. The "have nots" may disagree, arguing that equality means equal treatment on a punitive level (equal "sting"). If there are more poor than wealthy, then we could expect more wealth-based punishment regimes--at least to the extent the poor are politically involved.

One arena in which a level-of-wealth consideration has been drawn into the debate is agricultural subsidies. Part of the current debate is that large producers with high incomes do not "deserve" subsidies. Thus, the (oversimplified) argument goes, payment limitations should be set at a level that supports the little guy. Or, one interesting proposal, is to replace the current payment regime with one that insures gross income or revenue. And the strictest little-guy proponents would add that only smaller incomes or revenues should be insured. This, and many other legal regimes (graduated income taxes, for example) illustrate differences (real or perceived) between the wealthy and the poor.

It appears to me that there may be another reason why the wealthy would not like wealth-based regimes (whether it be income tax, subsidy programs, or punishment), even if they had a broad notion of equality on a wealth-sensitive level. Such line drawing lends more evidence to the groups that there are groups. That is, the more attention that is drawn to the difference, the more firmly entrenched that difference becomes. Or, at least, the difference persists noticeably. (This is also one argument for disbanding with affirmative action programs.) The more disenfranchised the have-nots feel, the more likely it is that they may rise up and redistribute concentrated wealth (hopefully through peaceful means). So the wealthy, even if they were to buy into an expanded notion of equality for tax, subsidy or punitive purposes, may perceive a threat that counsels against differential treatment--drawing a line between the groups for whatever purpose.

From the poor's perspective, they may oppose wealth-related treatment because they anticipate being wealthy. Such a so-called "veil of ignorance," though, fades with time when wealth becomes concentrated and stays there. Such prolonged concentration frustrates those who anticipate, or hope, for better days. And the frustration should be strong in a system that stresses opportunity and encourages everyone to seek and compete for wealth, at least when neither opportunity nor available wealth exists.

In any event, the lines we draw between wealthy and poor may have consequences that extend beyond equal treatment on an immediate level. And such lines could lead one to look for equality on a larger scale.

8/19/2006 10:40 AM  

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