Optimal Law Enforcement with Ordered Leniency

51 Pages Posted: 10 Apr 2018 Last revised: 17 Sep 2018

Claudia M. Landeo

University of Alberta - Department of Economics

Kathryn E. Spier

Harvard University - Law School - Faculty; National Bureau of Economic Research (NBER)

Date Written: September 13, 2018

Abstract

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

Landeo, Claudia M. and Spier, Kathryn E., Optimal Law Enforcement with Ordered Leniency (September 13, 2018). Harvard Public Law Working Paper No. 18-20. Available at SSRN: https://ssrn.com/abstract=3155503 or http://dx.doi.org/10.2139/ssrn.3155503

Claudia M. Landeo (Contact Author)

University of Alberta - Department of Economics ( email )

Henry Marshall Tory Building 7-25
Edmonton, Alberta T6G 2H4
Canada

HOME PAGE: http://sites.google.com/a/ualberta.ca/claudia-m-landeo-s-home-page/home

Kathryn E. Spier

Harvard University - Law School - Faculty ( email )

1575 Massachusetts
Hauser 302
Cambridge, MA 02138
United States
(617) 496-0019 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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