Stigmatization, Liability and Public Enforcement of Law

In the theory of public enforcement of law the choice of the liability rules is between strict liability and fault-based liability. In this paper, we study the determinants of compliance when in addition to standard economic incentives wrongdoers take into account stigmatization costs. In this context, this cost is not simply a transfer of resources. We show that a non-guiltiness standard — the fault standard equal to the deterrence level — is never optimal. In this scenario, we show how the optimal policy choice depends on the interplay between the magnitude of the harm and the stigmatization cost.