The optimal amount of fraud is non-zero
Something related that I&#x27;ve noticed in government projects is that they will spend $100K on a tender process to eliminate a fraud risk of 5% that amounts to at most $10K if it does occur. So if you amortise the total &quot;value&quot; of the fraud, it&#x27;s 10,000 x 0.05 = $500!<p>Spending $100K to avoid a loss of $500 is something most sane businesses will not do, but to government this makes perfect sense, because they have a <i>rule</i> that the acceptable amount of fraud is <i>zero</i>.<p>Hence, they&#x27;ll spend nearly <i>infinite</i> resources to try to bring fraud down to closer and closer to zero.[1]<p>You see similar things with risk aversion. Some risk is inevitable, but again, government departments will cheerfully blow billions of dollars to avoid the slightest risk. Projects like ITER and the SLS are highly risk averse and their costs reflect that. Meanwhile smaller, newer, <i>more risky</i> projects will run circles around them.<p>[1] At least what is <i>perceived</i> to be zero. In actuality fraud remains rampant, but as long as it is <i>technically</i> legal, it is not subject to this rule.