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Discussion Paper Details

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Title: Trust and Deterrence

Author(s): Maria Bigoni, Sven-Olof Fridolfsson, Chloé Le Coq and Giancarlo Spagnolo

Publication Date: June 2012

Keyword(s): Antitrust, Betrayal, Cartels, Collusion, Distrust, Fines, Leniency and Whistleblowers

Programme Area(s): Industrial Organization and Public Economics

Abstract: This paper presents results from a laboratory experiment on the channels through which different law enforcement strategies deter cartel formation. With leniency policies offering immunity to the first reporting party a high fine is the main determinant of deterrence, having a strong effect even when the probability of exogenous detection is zero. Deterrence appears then mainly driven by 'distrust', the fear of partners deviating and reporting. Absent leniency, the probability of detection and the expected fine matter the most, and low fines are exploited to punish defections. The results appear relevant to several other crimes sharing cartels' strategic features, including corruption and financial fraud.

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Bibliographic Reference

Bigoni, M, Fridolfsson, S, Le Coq, C and Spagnolo, G. 2012. 'Trust and Deterrence'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=9002