Optimal Fines in the Era of Whistleblowers - Should Price Fixers Still Go to Prison?

Lear Research Paper No. 05-01

53 Pages Posted: 28 Dec 2005  

Paolo Buccirossi

Laboratorio di economia, antitrust, regolamentazione (LEAR)

Giancarlo Spagnolo

Stockholm School of Economics (SITE); Centre for Economic Policy Research (CEPR); University of Rome 'Tor Vergata'; EIEF

Date Written: December 12, 2005

Abstract

We review current methods for calculating fines against cartels in the US and EU, and simulate their deterrence effects under different assumptions on the legal and economic environment. It is likely that European fines have not had significant deterrence effects before leniency programs were introduced. Previous simulations of the effects of fines ignore the different type of deterrence that leniency programs bring about, and, therefore, grossly overstate the minimum fine likely to have deterrence effects. With schemes that reward whistleblowers, the minimum fine with deterrence effects falls to extremely low levels (below 10% of the optimal Beckerian fine). Strategic judgement-proofness can and should be prevented by suitable regulation or extended liability. Criminal sanctions, in the form of imprisonment, certainly bring benefits (and costs) in terms of cartel deterrence, but the firms' limited ability to pay does not appear any longer such a strong argument for their introduction.

Keywords: Antitrust Amnesty, Cartels, Collusion, Corporate crime, Debt, Deterrence, Extended liability, Fines, Law enforcement, Leniency, Immunity, Imprisonment, Judgment proofness, Optimal fines, Optimal sanctions, Optimal liability, Organized crime, Political economy, Rewards, Sunk cost bias, Whistleblowers

JEL Classification: K21, K42, L20

Suggested Citation

Buccirossi, Paolo and Spagnolo, Giancarlo, Optimal Fines in the Era of Whistleblowers - Should Price Fixers Still Go to Prison? (December 12, 2005). Lear Research Paper No. 05-01. Available at SSRN: https://ssrn.com/abstract=871726 or http://dx.doi.org/10.2139/ssrn.871726

Paolo Buccirossi (Contact Author)

Laboratorio di economia, antitrust, regolamentazione (LEAR) ( email )

Via di Monserrato 48
Rome, 00186
Italy
+39 066 830 0530 (Phone)

Giancarlo Spagnolo

Stockholm School of Economics (SITE) ( email )

P.O. Box 6501
Stockholm
Sweden

HOME PAGE: http://https://sites.google.com/site/giancarlospagnoloshomepage/

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

University of Rome 'Tor Vergata' ( email )

Faculty of Economics - DEI
Via Columbia 2
Rome, RM 00133
Italy

EIEF ( email )

Via Due Macelli, 73
Rome, 00187
Italy

HOME PAGE: http://WWW.EIEF.IT

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