Confronting the Two Faces of Corporate Fraud
Miriam H. Baer
Brooklyn Law School
April 21, 2014
Florida Law Review, Vol. 66, p. 87, 2014
Brooklyn Law School, Legal Studies Paper No. 377
Some criminals engage in meticulous planning. Others commit crimes in the heat of the moment. Corporate fraud incorporates both planned and spur-of-the-moment misconduct. Although law and economics scholars have traditionally viewed corporate fraud as a manifestation of opportunism among the corporation’s agents, a new generation of scholars, influenced by findings in behavioral psychology, has focused on the temporal aspects of corporate misconduct. Wrongdoing comes about, not simply because an agent opportunistically takes advantage of her principal, but also because her short-term self falls prey to temptations and cognitive biases that effectively disable her law-abiding long-term self.
Although the law and economics and behavioral psychology accounts separately offer important lessons for observers of corporate fraud, neither theory addresses the regulatory implications confronting opportunistic behavior and temporal inconsistency at the same time. How can an internal corporate enforcer best respond to the “two faces” of corporate fraud? This Article explores this question, first by analyzing the interaction between the two dispositions, and then by considering the relative merits of various enforcement approaches.
Number of Pages in PDF File: 71
Keywords: fraud, deterrence, agency costs, hyperbolic discounting, behavioral psychology, white-collar crime, corporate governance, corporate compliance, self-control
Date posted: April 22, 2014 ; Last revised: May 1, 2014
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