Citation

Curry PA, Mongrain S. Can. J. Econ. 2008; 41(2): 583-594.

Copyright

(Copyright © 2008, Canadian Economics Association, Publisher John Wiley and Sons)

DOI

10.1111/j.1365-2966.2008.00476.x

PMID

unavailable

Abstract

This paper provides an efficiency explanation for regulation of sex, drugs, and gambling. We propose that these ‘morality laws’ can be explained by considering some activities to impose a negative externality when the activity is observed. Efficiency requires discretion by the individual who engages in such activities. When discretion is difficult to regulate directly, the activities can instead be proscribed, thereby giving individuals incentive to hide their actions from others. We find conditions for the first-best levels of consumption and hiding to be implementable. Since some level of activity is efficient, the optimal sanctions are not maximal.