Optimal Deterrence of Illegal Behavior Under Imperfect Corporate Governance

TILEC Discussion Paper No. 2014-053

CentER Discussion Paper No/ 2014-078

34 Pages Posted: 21 Dec 2014

See all articles by Cédric Argenton

Cédric Argenton

Tilburg Law and Economics Center (TILEC); Tilburg University - Tilburg University School of Economics and Management

Eric van Damme

TILEC and CentER, Tilburg University

Date Written: December 18, 2014

Abstract

We study the optimal design of liability schemes (at the corporate or individual level) when the objective is to deter socially harmful corporate behavior without discouraging productivity enhancements. We assume that firms face agency problems between shareholders and managers (moral hazard) and that unlimited sanctions on individuals are not available. We show that pure corporate liability rules can induce the first-best outcome only if firms can condition compensation on detection and the enforcement system is good enough. In other circumstances, unless individual sanctions can be very high, optimal mechanisms typically impose both corporate and individual liability.

Keywords: illegal behavior, deterrence, agency problems, moral hazard, corporate liability, corporate crime

JEL Classification: D82, K21, L49

Suggested Citation

Argenton, Cédric and van Damme, Eric E.C., Optimal Deterrence of Illegal Behavior Under Imperfect Corporate Governance (December 18, 2014). TILEC Discussion Paper No. 2014-053, CentER Discussion Paper No/ 2014-078, Available at SSRN: https://ssrn.com/abstract=2540155 or http://dx.doi.org/10.2139/ssrn.2540155

Cédric Argenton (Contact Author)

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Tilburg University - Tilburg University School of Economics and Management ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Eric E.C. Van Damme

TILEC and CentER, Tilburg University ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 3045 (Phone)
+31 13 466 3066 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
139
Abstract Views
1,131
rank
229,295
PlumX Metrics