Private Law Enforcement, Fine Sharing, and Tax Collection: Theory and Historical Evidence

This paper contributes to the literature on private law enforcement by proposing a novel solution to the problem of underenforcement by monopolistic enforcers. Monopolistic enforcers underinvest in fine collection because, by maximizing net expected revenue, they ignore the social benefits of deterrence. We show that this problem can be partially resolved by combining the tasks of law enforcement with tax collection because a joint enforcer-collector will have an interest in reducing the crime rate in order to maximize his income from taxes. In support of the theory, we discuss two historical examples of this practice: decentralized law enforcement under European feudalism, and centralized law enforcement in the Ottoman Empire.