=+17.13 Policy Application: More Police or More Teachers? Enforcement versus Education: Suppose again

(as in exercise 17.12) that the payoff from engaging in a life of crime is x1 if you don’t get caught and x0

(significantly below x1

) if you end up in jail, with d representing the probability of getting caught.

Suppose everyone has identical tastes but we differ in terms of the amount of income we can earn in the

(legal) labor market, with (legal) incomes distributed uniformly (i.e., evenly) between x0 and x1

.