DP5465 Optimal Fines in the Era of Whistleblowers

Author(s): Paolo Buccirossi, Giancarlo Spagnolo
Publication Date: January 2006
Keyword(s): amnesty, antitrust, cartels, collusion, corporate crime, debt, deterrence, extended liability, fines, immunity, imprisonment, judgement proofness, law enforcement, leniency, optimal fines, optimal liability, optimal sanctions, organized crime, political economy, rewards, sunk cost bias, whistleblowers
JEL(s): D43, D78, G18, G33, K21, K42, L41
Programme Areas: Industrial Organization
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=5465

We review current methods for calculating fines against cartels in the US and EU, and simulate their deterrence effects under different assumptions on the legal and economic environment. It is likely that European fines have not had significant deterrence effects before leniency programs were introduced. Previous simulations of the effects of fines ignore the different type of deterrence that leniency programs bring about, and, therefore, grossly overstate the minimum fine likely to have deterrence effects. With schemes that reward whistleblowers, the minimum fine with deterrence effects falls to extremely low levels (below 10% of the optimal "Beckerian" fine). Strategic judgement-proofness can and should be prevented by suitable regulation or extended liability. Criminal sanctions, in the form of imprisonment, certainly bring benefits (and costs) in terms of cartel deterrence, but the firms’ limited ability to pay does not appear any longer such a strong argument for their introduction.