In Scarlet Letters (and Numbers), Alex Tabarrok explains the economics of punishment — using this unusual punishment as a jumping-off point:
In Ohio, drivers convicted of drunk driving will be issued special red on yellow license plates.
In many ways, fines make good economic sense:
From an economic point of view, fines are the best punishment because they benefit the punisher as they punish the violator and imprisonment is the worst punishment since it punishes the punisher as well as the violator.Many people don’t like fines, however, because they seem to allow the rich to get away with anything so long as they pay the price . But in theory, if the fine is set equal to the expected cost of the crime, everyone should face the same fine irrespective of wealth and if the benefit of violating the law exceeds the fine then paying the fine and violating the law is the efficient solution. Economists think this argument is obviously correct but it leaves most people cold.
The first half of this next point should be pretty clear; the second half isn’t quite as obvious:
Fines do have another disadvantage if you don’t trust the government (i.e. take this disadvantage seriously). Precisely because the fine is a revenue to the government it encourages them to fine more. And precisely because imprisonment is costly we expect government to be more restrained in its use.
Social sanctions form a middle ground, between fines and imprisonment:
Social sanctions punish the violator, and are perhaps a better signal to others about the costs of crime than are fines, but have neither benefits nor costs to the punisher – thus they lie in-between fines and imprisonment. If fines are thought unfair or too dangerous and imprisonment is too expensive then social sanctions seem ideal. It’s surprising that we don’t see this form of punishment more often.