A Model of Corporate Self-Policing and Self-Reporting
Harvard John M. Olin Fellows' Discussion Paper Series No. 88
19 Pages Posted: 21 Sep 2019 Last revised: 24 Aug 2020
Date Written: January 22, 2020
What are the effects of corporate self-reporting schemes on deterrence of corporate crime? This paper presents a model to analyze this question for the case in which a firm’s manager, who has stock-based compensation, commits a corporate crime and the firm conducts self-policing and self-reporting. Corporate self-reporting schemes may enhance deterrence if the level of corporate leniency is within a certain range. But the level of corporate leniency has a non-monotonic relationship with deterrence in that range: as the level of corporate sanctions decreases, receding from the upper limit of the range, the probability of crime occurring first decreases and then increases. The paper also considers the case in which both individual and corporate self-reporting programs are introduced. The social desirability of individual self-reporting schemes depends on whether firms can commit to a certain level of self-policing efforts.
Keywords: corporate crime, self-policing, self-reporting, deterrence
JEL Classification: G38, K14, K22, K42, M48
Suggested Citation: Suggested Citation