Willingness to Pay to Reduce White Collar and Corporate Crime

31 Pages Posted: 25 Aug 2014 Last revised: 2 Aug 2017

See all articles by Mark A. Cohen

Mark A. Cohen

Vanderbilt University - Strategy and Business Economics; Vanderbilt University - Law School; Resources for the Future

Date Written: May 20, 2015

Abstract

Consumer protection and financial regulatory agencies such as the Federal Trade Commission (FTC), the Securities and Exchange Commission (SEC), and the Consumer Financial Protection Bureau (CFPB) regulate various types of consumer, investor and financial frauds. Whether required or not, rulemaking proceedings oftentimes include some form of cost-benefit analysis. Thus, the benefits of proposed regulations – whether fully quantified or not – are an increasingly important component of rulemaking decisions. Anecdotal evidence suggests that the impact on victims in some cases include significant time and financial hardships and even pain, suffering and reduced quality of life. Further, the existence of these offenses causes non-victims to take costly precautionary behavior and might even inhibit legitimate business activities. Yet, little is known about the true costs of consumer and financial crimes other than the out-of-pocket monetary losses incurred by victims. To the extent society wishes to optimally deter such crimes, without better data on nonmonetary costs, any cost-benefit analyses of criminal justice or prevention programs designed to reduce these crimes will inevitably underestimate program benefits. This paper provides an initial framework and empirical estimates of the willingness-to-pay to reduce four types of white collar and corporate offenses – consumer fraud, financial fraud, corporate crime and corporate financial crime. Utilizing a contingent valuation survey approached that has been used to estimate the cost of street crimes, the average willingness to pay for a 10% reduction in each of these four offenses is estimated to range between $35 and $85 per household. In the case of consumer fraud and financial fraud – where estimates of prevalence are available, this translates into a willingness to pay of $1,200 per consumer fraud and $12,000 for financial fraud. In contrast, the out-of-pocket costs to victims of consumer fraud have been estimated to average about $100, and about $200 to $250 for various types of financial frauds. These figures also compare favorably to the willingness to pay for a reduced household burglary of $19,000.

Keywords: consumer protection, willingness-to-pay, financial fraud, white-collar crime

JEL Classification: D18, D61, G28, K42

Suggested Citation

Cohen, Mark A., Willingness to Pay to Reduce White Collar and Corporate Crime (May 20, 2015). Vanderbilt Law and Economics Research Paper No. 14-28; Vanderbilt Owen Graduate School of Management Research Paper No. 2486220. Available at SSRN: https://ssrn.com/abstract=2486220 or http://dx.doi.org/10.2139/ssrn.2486220

Mark A. Cohen (Contact Author)

Vanderbilt University - Strategy and Business Economics ( email )

Nashville, TN 37203
United States
615-322-0533 (Phone)

HOME PAGE: http://https://business.vanderbilt.edu/bio/mark-cohen/

Vanderbilt University - Law School

131 21st Avenue South
Nashville, TN 37203-1181
United States

Resources for the Future ( email )

1616 P Street, NW
Washington, DC 20036
United States
202-328-5000 (Phone)

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