DP5442 Leniency Policies and Illegal Transactions
|Author(s):||Paolo Buccirossi, Giancarlo Spagnolo|
|Publication Date:||December 2005|
|Keyword(s):||amnesty, collusion, corruption, financial fraud, governance, hold up, hostages, illegal trade, immunity, law enforcement, leniency, organized crime, self-reporting, whistleblowers|
|JEL(s):||D73, G38, K21, K42, M42|
|Programme Areas:||Public Economics, Financial Economics, Industrial Organization|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=5442|
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.