Optimal Law Enforcement with Ordered Leniency

The Journal of Law and Economics, Forthcoming

41 Pages Posted: 15 Aug 2019

See all articles by Claudia M. Landeo

Claudia M. Landeo

University of Alberta - Department of Economics

Kathryn E. Spier

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

Multiple version iconThere are 3 versions of this paper

Date Written: August 10, 2019

Abstract

This paper studies the design of optimal enforcement policies with ordered leniency to detect and deter harmful short-term activities committed by groups of injurers. With ordered leniency, the degree of leniency granted to an injurer who self-reports depends on his or her position in the self-reporting queue. We show that the ordered-leniency policy that induces maximal deterrence gives successively larger discounts to injurers who secure higher positions in the reporting queue. This creates a so-called "race to the courthouse" where all injurers self-report promptly and, as a result, social harm is reduced. We show that the expected fine increases with the size of the group, thus discouraging the formation of large illegal enterprises. The first-best outcome is obtained with ordered leniency when the externalities associated with the harmful activities are not too high. Our findings complement Kaplow and Shavell's (JPE 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 Policy Enforcement

JEL Classification: C72, D86, K10, L23

Suggested Citation

Landeo, Claudia M. and Spier, Kathryn E., Optimal Law Enforcement with Ordered Leniency (August 10, 2019). The Journal of Law and Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3435620

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

Register to save articles to
your library

Register

Paper statistics

Downloads
4
Abstract Views
413
PlumX Metrics