Sanctions for Repeat Offenders: A Question of Wealth?

In a two-period standard law-enforcement model, individuals observe or break the law. In addition, individuals may offend accidentally. When sanctions are limited by individual wealth constraints, the government chooses appropriate sanctions for first and repeat offenders and the level of monitoring. We assume a welfare-oriented government and derive subgame-perfect equilibria for constant, increasing and decreasing sanctions depending on the individual wealth level.