On the interplay of public and private law enforcement with multiple victims

Abstract

We analyze the interplay of public and private law enforcement when an infringement affects multiple parties, and where detection by just one party is sufficient to avoid the harm. Detection causes a positive externality on other victims, so that private effort incentives are inefficiently low. The public agency has might reduce its own inspection frequency in order to increase the number of private inspections (Peltzman-effect). However, due to the private parties’ incentive compatibility constraints, the agency can only trigger inspection by one more private party compared to the number of inspections when itself inspects with full frequency. Inspecting with full frequency is more likely to be second-best when the number of private parties affected is high.