Working Paper: CEPR ID: DP9290
Authors: Natalia Fabra; Massimo Motta
Abstract: In a model in which firms can go bankrupt because of adverse market shocks or antitrust fines, we find that even large corporate fines may not be able to induce deterrence. Managerial penalties are thus needed. If the policy may be changed according to the state of the business cycle, then the optimal outcome can always be achieved through antitrust fines that are more severe in good times and more lenient in bad times. A time-independent policy may result in either too many bankruptcies or under-deterrence as compared to the optimal policy.
Keywords: antitrust fines; business cycles; managing incentives
JEL Codes: K14; K42; L13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| High corporate fines (G38) | Increased bankruptcy risk (G33) |
| Increased bankruptcy risk (G33) | Reduced deterrent effect of corporate fines (G38) |
| Managerial penalties (M12) | Induced deterrence (K42) |
| Severity of corporate fines (G38) | Minimum managerial penalty required for deterrence (K29) |
| Economic conditions (E66) | Effectiveness of antitrust policy (L49) |