International Review of Law and Economics zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONM (1984), 4 (55-66) zyxwvutsrqponmlkjihgfedcbaZY THE REGRESSIVE NATURE OF CIVIL PENALTIES* PHYLLIS ALTROGGE Bureau of Economics, Federal Trade Commission, Washington DC 20580, USA AND WILLIAM F. SHUGHART II Federal Trade Commission and Clemson University, Clemson SC 29631, USA I. INTRODUCTION The US Federal Trade Commission (FTC), which enforces the Clayton, Sherman and FTC Acts, has statutory authority to seek civil penalties in district court against firms found in violation of the Commission’s rules and orders. Although fines may be imposed on firms found not in compliance with certain antitrust orders, civil penalties have heretofore been assessed by the FTC only in consumer protection matters. The provisions of the law which authorize such penalties are vague with respect to how the Commission should determine the size of the fines it assesses, stating only that penalties shall not exceed $10000 for each violation, each day of non-compliance constituting a separate violation. In arriving at the total amount, the Commission is instructed to consider ‘the degree of culpability, and history of prior such conduct, ability to pay, effect on ability to continue to do business, and such other matters as justice may require.” Thus, the Commission has substantial discretion in using fines as an enforcement device. Most previous discussions of enforcement strategies for civil violations omit details about the implementation of monetary remedies. For example, Gary Becker, in his theoretical work on crime in general, pointed out that in focusing on optimal policies he had paid little attention to actual policies although he believed a positive correspondence might exist between optimal and actual strategies.2 On the other hand, George Stigler suspected the difference between optimal and actual enforce- ment policies might be very great for civil violations. As an example, he singled out the FTC’s enforcement of truthful labeling for furs and textiles. According to Stigler the Commission in its annual report recites ‘scandals corrected and others still unrepressed, but neither offers nor possesses a criterion by which to determine the correct scale of its activities.‘3 Although much empirical work has been done in the area of criminal violations, we are not aware of any studies that have looked at civil violations.4 There are no empirical analyses directed toward identifying whether the way in which civil * The opinions expressed in this paper are those of the authors and do not necessarily reflect the views of the Federal Trade Commission, its staff, or any individual Commissioner. We are grateful to Robert Tollison, Richard Higgins and two anonymous referees for comments on an earlier draft. The usual caveat applies. 0144-8188/84/01 0055-12 $03.00 0 1984 Butterworth & Co (Publishers) Ltd