Discussion paper

DP5442 Leniency Policies and Illegal Transactions

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.


Spagnolo, G and P Buccirossi (2005), ‘DP5442 Leniency Policies and Illegal Transactions‘, CEPR Discussion Paper No. 5442. CEPR Press, Paris & London. https://cepr.org/publications/dp5442