Corruption and Self-Reporting in Optimal Law Enforcement

Aachen Micro Working Paper No. 5

19 Pages Posted: 30 Nov 2001

See all articles by Markus Walzl

Markus Walzl

RWTH Aachen University - Chair for Economics (Microeconomics)

Eberhard Feess

Frankfurt School of Finance & Management gemeinn├╝tzige GmbH

Date Written: October 2001

Abstract

We extend the analysis of optimal self-reporting schemes to situations like corruption where two individuals are required for a criminal act. This leads to strategic interactions in the self-reporting stage, because the fine can be made dependent on whether the accomplice self-reports or not. When the violators behave non-cooperatively in the self-reporting stage, they can be driven in a prisoner's dilemma by assigning low fines if only one self-reports, and high fines if both self-report. In equilibrium, both pay the high fine and can hence be maximally deterred at almost no cost. We suggest cooperative behavior in the self-reporting stage as an explanation why such a scheme is not observed in reality. The optimal self-reporting scheme is derived under the assumption that the probability of cooperation depends on the benefit from cooperative behavior in the self-reporting stage. Since the optimal self-reporting scheme considerably reduces social costs of law enforcement, we conclude that self-reporting should play an important role if strategic interactions between the violators are notorious.

Keywords: self-reporting, optimal law enforcement, corruption

JEL Classification: D62, D82, H50, K42

Suggested Citation

Walzl, Markus and Feess, Eberhard, Corruption and Self-Reporting in Optimal Law Enforcement (October 2001). Aachen Micro Working Paper No. 5. Available at SSRN: https://ssrn.com/abstract=292254 or http://dx.doi.org/10.2139/ssrn.292254

Markus Walzl (Contact Author)

RWTH Aachen University - Chair for Economics (Microeconomics) ( email )

Aachen, 52056
Germany
0049 241 809 6157 (Phone)
0049 241 809 2345 (Fax)

Eberhard Feess

Frankfurt School of Finance & Management gemeinn├╝tzige GmbH ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

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