Tuesday, November 20, 2018

Optimal Law Enforcement with Ordered Leniency

Claudia M. Landeo and Kathryn E. Spier discuss Optimal Law Enforcement with Ordered Leniency.

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.

https://lawprofessors.typepad.com/antitrustprof_blog/2018/11/optimal-law-enforcement-with-ordered-leniency.html

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