Optimal Law Enforcement with Ordered Leniency
51 Pages Posted: 10 Apr 2018 Last revised: 17 Sep 2018
Date Written: September 13, 2018
This paper studies the design of enforcement policies to detect and deter harmful short-term activities committed by groups of injurers. With an ordered-leniency policy, the degree of leniency granted to an injurer who self-reports depends on his or her position in the self-reporting queue. By creating a ``race to the courthouse," ordered-leniency policies lead to faster detection and stronger deterrence of illegal activities. The socially-optimal level of deterrence can be obtained at zero cost when the externalities associated with the harmful activities are not too high. Without leniency for self-reporting, the enforcement cost is strictly positive and there is underdeterrence of harmful activities relative to the first-best level. Hence, ordered-leniency policies are welfare improving. Our findings for environments with groups of injurers complement Kaplow and Shavell's (1994) results for single-injurer environments.
Keywords: Law Enforcement, Ordered Leniency, Self-Reporting, Leniency, Harmful Externalities, Non-Cooperative Games, Prisoners' Dilemma Game, Coordination Game, Risk Dominance, Pareto Dominance, Corporate Misconduct, White-Collar Crime, Insider Trading, Plea Bargaining, Whistleblowers, Tax Evasion
JEL Classification: C72, D86, K10, L23
Suggested Citation: Suggested Citation