New Economics Papers
on Law and Economics
Issue of 2006‒01‒29
four papers chosen by
Jeong-Joon Lee, Towson University

  1. Leniency Policies and Illegal Transactions By Buccirossi, Paolo; Spagnolo, Giancarlo
  2. Strong and Weak Ties in Employment and Crime By Calvó-Armengol, Antoni; Verdier, Thierry; Zenou, Yves
  3. Optimal Fines in the Era of Whistleblowers By Buccirossi, Paolo; Spagnolo, Giancarlo
  4. Nothing like the Enron affair could happen in France (!) By Stolowy, Hervé

  1. By: Buccirossi, Paolo; Spagnolo, Giancarlo
    Abstract: We study the consequences of leniency - reduced legal sanctions for wrongdoers who spontaneously self-report to law enforcers - on sequential, bilateral, illegal transactions such as corruption, manager-auditor collusion, or drug deals. It is known that leniency helps to deter illegal relationships sustained by repeated interaction. Here we find that - when not properly designed - leniency may simultaneously provide an effective governance mechanism for occasional sequential illegal transactions that would not be feasible in its absence.
    Keywords: amnesty; collusion; corruption; financial fraud; governance; hold up; hostages; illegal trade; immunity; law enforcement; leniency; organized crime; self-reporting; whistleblowers
    JEL: D73 G38 K21 K42 M42
    Date: 2006–01
  2. By: Calvó-Armengol, Antoni; Verdier, Thierry; Zenou, Yves
    Abstract: This paper analyses the interplay between social structure and information exchange in two competing activities, crime and labour. We consider a dynamic model in which individuals belong to mutually exclusive two-person groups, referred to as dyads. There are multiple equilibria. If jobs are badly paid and/or crime is profitable, unemployment benefits have to be low enough to prevent workers for staying too long in the unemployment status because they are vulnerable to crime activities. If, instead, jobs are well paid and/or crime is not profitable, unemployment benefits have to be high enough to induce workers to stay unemployed rather to commit crime because they are less vulnerable to crime activities. Also, in segregated neighbourhoods characterized by high interactions between peers, a policy only based on punishment and arrest will not be efficient in reducing crime. It has to be accompanied by other types of policies that take into account social interactions.
    Keywords: crime; forward-looking agents; labour market; social interaction
    JEL: A14 J40 K42
    Date: 2006–01
  3. By: Buccirossi, Paolo; Spagnolo, Giancarlo
    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: amnesty; antitrust; cartels; collusion; corporate crime; debt; deterrence; extended liability; fines; immunity; imprisonment; judgement proofness; law enforcement; leniency; optimal fines; optimal liability; optimal sanctions; organized crime; political economy; rewards; sunk cost bias; whistleblowers
    JEL: D43 D78 G18 G33 K21 K42 L41
    Date: 2006–01
  4. By: Stolowy, Hervé
    Abstract: This article reviews the reactions of the French accounting profession and academia following the collapse of both Enron and Andersen. It considers the general impact on University accounting education programmes and the value of using corporate scandals in the teaching process.
    Keywords: Enron; accounting eductation; ethics; France
    JEL: K41 K42 M41
    Date: 2005–03–11

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