Potential Abuses under Private Law Enforcement

The first problem is the familiar stuff of graft and abuse of police authority. The second problem (prosecuting innocent people) might occur in various ways. For example, a private enforcement agency might:

• Fabricate an offense and then arrest and prosecute someone.
• Select an innocent person to prosecute for an actual crime.
• Induce a person to commit an offense that he would not otherwise commit and then prosecute (so-called entrapment).
• Knowing a crime is about to occur, wait until it occurs and then prosecute to obtain a higher reward than by prosecuting an attempted crime.

The third form of corruption occurs if there is a large gap between the fine owed by the criminal and the amount paid to the successful enforcer.66 Under these circumstances, the criminal could pay the enforcer an amount larger than the reward he will recover but less than the total fine owed by the criminal. Both would profit from this arrangement, at least in the short run, other considerations aside. For example, suppose the enforcer will be paid $2,000 for the arrest, and the criminal faces an 80 percent chance of a $20,000 fine upon conviction. The criminal could offer $2,500 to the enforcer and both would profit by the exchange.67

Yet all these temptations exist for government officials as well. Police scandals involving participation in burglary rings, drug dealing, bribes and abuse of innocents is familiar fare.68 Logic implies that corruption problems exist in even greater degree in public than private law enforcement because private market mechanisms make corruption and betrayal of public trust more expensive for offenders. To understand why, consider each problem in turn.

"Private enforcers have stronger incentives not to abuse rights."

With regard to the first problem - integrated theft and recovery firms in a privatized law enforcement regime - insurance companies would have to guard against and discourage such criminal exploitation more vigilantly than they do now. The same techniques aimed at stopping all types of insurance fraud would be employed. One such technique is to use rewards more extensively to successfully prosecute perpetrators of fraud. More generally, the real disciplinary device for malfeasance is the marketplace. There is far less incentive for private enterprise enforcers to abuse rights. Competing private enforcement agencies must preserve a market reputation for fair and reliable dealing. Collaboration with criminals and abuse of innocents severely damages business reputation and therefore profitability. This market discipline is supplemented by bonding, licensing and common lawsuits. For example, unsuccessful searches and prosecutions cost time and money and add nothing to the bottom line. It pays private enforcers to avoid harming the innocent because it’s just too expensive. They are acutely aware of the costs of harassing innocents on the street and of prosecuting them. These activities do not yield the financial return to the business that successful apprehensions do.

Lawsuits are more potent against private enforcers than public enforcers. Victims of erroneous arrests and prosecutions can successfully sue private agents for damages. Although a wrongfully arrested person may have little status or money, lawyers are available on a contingency basis and the arrestor’s employer usually would be a suable (insured) "deep pocket." The employer is responsible for the on-the-job damages of his or her employees under the doctrine of respondent superior. Nor will abusive firms receive many contracts for enforcement services. Competition and the common law promote quality protective services at prices customers are willing to pay.

Government, by contrast, encourages authoritarian behavior. It retains sovereign immunity from lawsuits against a wide range of actions. Its employees have effective immunity from private suits, and it attracts those who enjoy wielding power over others. Public police are notoriously difficult to discipline.69