Working Paper: CEPR ID: DP5442
Authors: Paolo Buccirossi; Giancarlo Spagnolo
Abstract: We study the consequences of leniency - reduced legal sanctions for wrongdoers who spontaneously self-report to law enforcers - on sequential, bilateral, illegal transactions such as corruption, manager-auditor collusion, or drug deals. It is known that leniency helps to deter illegal relationships sustained by repeated interaction. Here we find that - when not properly designed - leniency may simultaneously provide an effective governance mechanism for occasional sequential illegal transactions that would not be feasible in its absence.
Keywords: amnesty; collusion; corruption; financial fraud; governance; hold up; hostages; illegal trade; immunity; law enforcement; leniency; organized crime; self-reporting; whistleblowers
JEL Codes: D73; G38; K21; K42; M42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| leniency policies (K40) | illegal transactions (K42) |
| poorly designed leniency (K40) | governance mechanism for illegal transactions (P37) |
| leniency (K21) | credible threats (D74) |
| credible threats (D74) | compliance (K40) |
| leniency policies (K40) | deterrence of long-term criminal relationships (K42) |
| leniency must not reduce fine below expected full fine (K40) | implementable illegal transactions (K42) |
| leniency must not reward above maximum expected gain (D81) | implementable illegal transactions (K42) |