Corruption and Self-Reporting in Optimal Law Enforcement
Aachen Micro Working Paper No. 5
19 Pages Posted: 30 Nov 2001
Date Written: October 2001
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: Suggested Citation