Property rights, theft, amnesty, and efficiency

In this paper we show that costs associated with infractions of property rights, such as theft, can be reduced by imposing lower penalties on individuals who admit to such infractions and make restitution. We find that the socially optimal penalty on a confessed thief may be zero (complete amnesty) or even negative - a person may be given a reward for confessing a theft. This is because a thief's valuation of a good is generally lower that its valuation by its legal owner, and an amnesty permits the trade that such a difference in valuation makes calls for. It is interesting to note that the benefits of amnesties were apparently recognized in ancient times and they constitute part of Biblical Law. Moreover, such amnesties have also been informally incorporated into modern legal systems, wherein leniency (a form of partial amnesty) is generally shown to individuals who confess their infractions.