Should Firms Be Allowed to Indemnify Their Employees for Sanctions?

Posted: 22 Feb 2010

See all articles by Wallace P. Mullin

Wallace P. Mullin

George Washington University - Department of Economics

Christopher M. Snyder

Dartmouth College - Department of Economics

Date Written: April 2010

Abstract

Policymakers have questioned whether firms should be allowed to indemnify their employees for personal sanctions for corporate crimes. This article provides the first formal analysis of this form of indemnification. Targeting employees with unindemnifiable sanctions carries the social cost of exposing employees of law-abiding firms to the risk of mistaken government prosecution. Deterrence is typically achieved more efficiently by sanctioning the firm alone. We find the circumstances under which the government should additionally sanction employees to be quite limited and the circumstances under which the government should ban indemnification of these sanctions to be more limited still. One circumstance is when an unindemnifiable employee sanction provides prosecutors with leverage to adjust the employee's sanction in exchange for his cooperation against the firm.

JEL Classification: K22, D82, L20

Suggested Citation

Mullin, Wallace P. and Snyder, Christopher M., Should Firms Be Allowed to Indemnify Their Employees for Sanctions? (April 2010). The Journal of Law, Economics, & Organization, Vol. 26, Issue 1, pp. 30-53, 2010, Available at SSRN: https://ssrn.com/abstract=1555539 or http://dx.doi.org/10.1093/jleo/ewn027

Wallace P. Mullin (Contact Author)

George Washington University - Department of Economics ( email )

2201 G Street NW
Washington, DC 20052
United States

Christopher M. Snyder

Dartmouth College - Department of Economics ( email )

301 Rockefeller Hall
Hanover, NH 03755
United States
(603) 646-0642 (Phone)
(603) 646-2122 (Fax)

HOME PAGE: http://www.dartmouth.edu/~csnyder/

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
331
PlumX Metrics