Law Enforcement in a Federal System: On the Strategic Choice of Sanction Levels

This paper explores law enforcement in a federal system to address the reality that the level of deterrence often results from decision making at different levels of the system. In this setting, the presence of interregional externalities in the form of crime diversion induces socially excessive law enforcement incentives at the local level. We show that the adverse repercussions of uncoordinated enforcement decisions at the local level may be ameliorated by the strategic choice of the sanction at the central level. A nonmaximal sanction may be optimal, even though a maximal sanction would be optimal when the central level chooses all law enforcement variables. This conclusion shows that optimal law enforcement in a federal system must take account of the strategic interdependencies of relevant actors. We also discuss whether other arrangements of decision-making powers may be associated with higher levels of welfare