"When I took that book out of the library--see that author photo?--he was clean-shaven."
Library overdue fines aren't primarily about collecting money; they're about ensuring that patrons return their books ... at some point. Most fees seem to be around 10 cents a day, with maximums of a few dollars per item.
If the fine is too small (say, a penny a year), people won't be very motivated to return books promptly, as a fine of a few pennies is essentially free. Still, the fine will cause ethical dilemmas for at least some people, making them feel like they've done something wrong.
If the fine is too large (say, $10 a day), people who forget to turn their books in on time will probably never step foot in the library again, in order to evade the fine. They could almost have bought the book brand new for that amount of money! Other residents will now avoid the library in the first place. This is clearly not in the library's interest, as its primary goal is to encourage reading in the community.
The fine needs to be just big enough to spur a tinge of guilt but not too large as to scare borrowers away. Library fines are rarely legally enforced (though there are some exceptions, and borrowers lose privileges to check out any more material), so they function almost as "voluntary fines." If the fine is too high, many people will never pay.
Of course, to avoid late fees, books can be renewed (in some cases, endlessly). This policy helps both sides. Readers can keep the books for a little longer than they expected, as long as they let the library know, without having to pay a fine. If a library sees that a book has been renewed, that shows some sign of conscientiousness on the part of the reader, most of whom will eventually return the book without having to be fined.
University libraries have the most leverage over the literary scofflaws. At many colleges, an overdue library book can prevent a student from seeing his final grades, requesting official transcripts, enrolling in classes, or filing for graduating.
Another way to get those overdue books back in? Make it trendy. The San Francisco Library hosted a "fine amnesty" program in May of last year, in which it solicited celebrity excuse videos and asked librarygoers to submit their own stories, true or not. The best stories were shared on the Web site and included in the library's newsletter.