Corporate Actors, Corporate Crimes and Time-Inconsistent Preferences

68 Pages Posted: 2 Apr 2014

See all articles by Manuel A. Utset

Manuel A. Utset

Florida State University College of Law

Date Written: December 1, 2013

Abstract

This article examines criminal misconduct by corporations and their agents. It allows for the possibility that corporate agents systematically mispredict their future willpower — their ability to withstand the transient pull of immediate gratification. The article shows that even relatively small mispredictions about their willpower can lead agents to engage in repeated misconduct, notwithstanding a long-term preference to obey the law — “time-inconsistent (TI) misconduct.” As a result, in most criminal law scenarios, the optimal sanctions for corporate actors with perfect self-control will under-deter TI actors. But the article also shows that, to the extent that the immediate costs of committing a crime are sufficiently high, a TI actor may repeatedly procrastinate following through with misconduct that, from a long-term perspective, made economic sense — i.e., the expected benefits exceeded the expected sanctions. In scenarios involving this sort of “time-inconsistent obedience,” the standard optimal sanctions will under-deter. The TI misconduct theory allows for a more intuitive explanation of repeated violations of securities, banking, and environmental laws by corporations and their agents. The theory also predicts that corporate governance problems will be more severe, to the extent that gatekeepers and regulators exhibit TI preferences, and as the immediate costs of acquiring information increases. This article was the subject of a symposium, in which Miriam Baer, Adam Candeub, Daniel Medwed, Richard Painter, and Robert Prentice contributed Comments.

Keywords: white collar crime, corporate crime, securities fraud, self-control, corporate scandals, Enron, gatekeepers, financial regulation

JEL Classification: D21, D23, D61, K14, K22

Suggested Citation

Utset, Manuel A., Corporate Actors, Corporate Crimes and Time-Inconsistent Preferences (December 1, 2013). 1 Virginia Journal of Criminal Law, No. 2, p. 265 (2013), FSU College of Law, Law, Business & Economics Paper No. 14-3, FSU College of Law, Public Law Research Paper No. 682, Available at SSRN: https://ssrn.com/abstract=2419218

Manuel A. Utset (Contact Author)

Florida State University College of Law ( email )

425 W. Jefferson Street
Tallahassee, FL 32306
United States
(850) 644-7274 (Phone)

HOME PAGE: http://law.fsu.edu/faculty-staff/manuel-utset-jr

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