IDEAS home Printed from https://ideas.repec.org/a/bpj/bejeap/v16y2016i2p647-687n9.html
   My bibliography  Save this article

Competitive Pressure and Corporate Crime

Author

Listed:
  • Baumann Florian

    (Center for Advanced Studies in Law and Economics (CASTLE), University of Bonn, Adenauerallee 42–42, 53113 Bonn, Germany)

  • Friehe Tim

Abstract

This paper explores the relationship between the intensity of product market competition and firms’ incentives to resort to illegal means to lower their production costs. To this end, our framework combines a crime model à la Becker with a Salop circle. When law enforcement includes a fixed fine for illegal conduct, more intense competition due to a higher number of firms in the industry reduces the prevalence of crime, whereas more intense competition due to better substitutability between products may increase or decrease crime. In contrast, when the fine for corporate crime is proportional to profits, more intense competition unambiguously increases the prevalence of crime. In addition, we discuss the implications of the link between product market competition and corporate crime decisions for market entry and optimal law enforcement and elaborate on the relationship between law enforcement and a firm’s ability to commit to refraining from the use of illegal practices.

Suggested Citation

  • Baumann Florian & Friehe Tim, 2016. "Competitive Pressure and Corporate Crime," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 16(2), pages 647-687, April.
    • Handle: RePEc:bpj:bejeap:v:16:y:2016:i:2:p:647-687:n:9
    DOI: 10.1515/bejeap-2015-0064
    as

    Download full text from publisher

    File URL: https://doi.org/10.1515/bejeap-2015-0064
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.
    File URL: https://libkey.io/10.1515/bejeap-2015-0064?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Narek Sahakyan & Kyle W. Stiegert, 2012. "Corruption and Firm Performance," Eastern European Economics, Taylor & Francis Journals, vol. 50(6), pages 5-27, November.
    2. Rafael Di Tella & Alberto Ades, 1999. "Rents, Competition, and Corruption," American Economic Review, American Economic Association, vol. 89(4), pages 982-993, September.
    3. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    4. Philippe Aghion & Nick Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2005. "Competition and Innovation: an Inverted-U Relationship," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(2), pages 701-728.
    5. Cartwright, Edward & Menezes, Matheus L.C., 2014. "Cheating to win: Dishonesty and the intensity of competition," Economics Letters, Elsevier, vol. 122(1), pages 55-58.
    6. John C. Harsanyi & Reinhard Selten, 1988. "A General Theory of Equilibrium Selection in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582384, December.
    7. Lindsay Tedds, 2010. "Keeping it off the books: an empirical investigation of firms that engage in tax evasion," Applied Economics, Taylor & Francis Journals, vol. 42(19), pages 2459-2473.
    8. Nuno Garoupa (ed.), 2009. "Criminal Law and Economics," Books, Edward Elgar Publishing, number 12729.
    9. Ferrer, Rosa, 2010. "Breaking the law when others do: A model of law enforcement with neighborhood externalities," European Economic Review, Elsevier, vol. 54(2), pages 163-180, February.
    10. Gary S. Becker, 1974. "Crime and Punishment: An Economic Approach," NBER Chapters, in: Essays in the Economics of Crime and Punishment, pages 1-54, National Bureau of Economic Research, Inc.
    11. Jan Boone, 2000. "Competitive Pressure: The Effects on Investments in Product and Process Innovation," RAND Journal of Economics, The RAND Corporation, vol. 31(3), pages 549-569, Autumn.
    12. Victor Manuel Bennett & Lamar Pierce & Jason A. Snyder & Michael W. Toffel, 2013. "Customer-Driven Misconduct: How Competition Corrupts Business Practices," Management Science, INFORMS, vol. 59(8), pages 1725-1742, August.
    13. Andrei Shleifer, 2004. "Does Competition Destroy Ethical Behavior?," American Economic Review, American Economic Association, vol. 94(2), pages 414-418, May.
    14. Danziger, Leif, 2010. "Endogenous monopsony and the perverse effect of the minimum wage in small firms," Labour Economics, Elsevier, vol. 17(1), pages 224-229, January.
    15. A. Mitchell Polinsky & Steven Shavell (ed.), 2007. "Handbook of Law and Economics," Handbook of Law and Economics, Elsevier, edition 1, volume 2, number 2.
    16. Jay Pil Choi & Heiko Gerlach, 2012. "International Antitrust Enforcement And Multimarket Contact," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(2), pages 635-658, May.
    17. Baumann, Florian & Friehe, Tim, 2012. "On the evasion of employment protection legislation," Labour Economics, Elsevier, vol. 19(1), pages 9-17.
    18. Polinsky, A. Mitchell & Shavell, Steven, 2007. "The Theory of Public Enforcement of Law," Handbook of Law and Economics, in: A. Mitchell Polinsky & Steven Shavell (ed.), Handbook of Law and Economics, edition 1, volume 1, chapter 6, pages 403-454, Elsevier.
    19. Carmen Arguedas, 2013. "Pollution standards, technology investment and fines for non-compliance," Journal of Regulatory Economics, Springer, vol. 44(2), pages 156-176, October.
    20. Xavier Vives, 2008. "Innovation And Competitive Pressure," Journal of Industrial Economics, Wiley Blackwell, vol. 56(3), pages 419-469, December.
    21. Datta, Sudip & Iskandar-Datta, Mai & Singh, Vivek, 2013. "Product market power, industry structure, and corporate earnings management," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 3273-3285.
    22. Alexander, Cindy R & Arlen, Jennifer & Cohen, Mark A, 1999. "Regulating Corporate Criminal Sanctions: Federal Guidelines and the Sentencing of Public Firms," Journal of Law and Economics, University of Chicago Press, vol. 42(1), pages 393-422, April.
    23. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
    24. Karlinger, Liliane, 2009. "The Underground Economy in the Late 1990s: Evading Taxes, or Evading Competition?," World Development, Elsevier, vol. 37(10), pages 1600-1611, October.
    25. Harford, Jon D., 1978. "Firm behavior under imperfectly enforceable pollution standards and taxes," Journal of Environmental Economics and Management, Elsevier, vol. 5(1), pages 26-43, March.
    26. Laszlo Goerke & Marco Runkel, 2011. "Tax evasion and competition," Scottish Journal of Political Economy, Scottish Economic Society, vol. 58(5), pages 711-736, November.
    27. A. Mitchell Polinsky & Steven Shavell (ed.), 2007. "Handbook of Law and Economics," Handbook of Law and Economics, Elsevier, edition 1, volume 1, number 1.
    28. Alon Harel & Keith N. Hylton (ed.), 2012. "Research Handbook on the Economics of Criminal Law," Books, Edward Elgar Publishing, number 13467.
    29. Sjoquist, David Lawrence, 1973. "Property Crime and Economic Behavior: Some Empirical Results," American Economic Review, American Economic Association, vol. 63(3), pages 439-446, June.
    30. Kevin C. Murdock & Thomas F. Hellmann & Joseph E. Stiglitz, 2000. "Liberalization, Moral Hazard in Banking, and Prudential Regulation: Are Capital Requirements Enough?," American Economic Review, American Economic Association, vol. 90(1), pages 147-165, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Collen Lediga & Nadine Riedel & Kristina Strohmaier, 2018. "Combatting Tax Evasion: Evidence from Comparing Commercial and Business Tax Registry," CESifo Working Paper Series 7117, CESifo.
    2. Abbas Khandan, 2022. "Externalities in the rent-seeking strategies of lobbying and bribery," Public Sector Economics, Institute of Public Finance, vol. 46(3), pages 421-450.
    3. Matthew D. Rablen & Andrew Samuel, 2021. "Self‐reporting and Market Structure," Economica, London School of Economics and Political Science, vol. 88(351), pages 782-808, July.
    4. Dechenaux Emmanuel & Samuel Andrew, 2019. "Announced or Surprise Inspections and Oligopoly Competition," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 19(1), pages 1-20, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Friehe, Tim & Miceli, Thomas J., 2015. "Focusing law enforcement when offenders can choose location," International Review of Law and Economics, Elsevier, vol. 42(C), pages 105-112.
    2. Tim Reuter, 2017. "Endogenous Cartel Organization and Antitrust Fine Discrimination," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 51(3), pages 291-313, November.
    3. Florian Baumann & Tim Friehe, 2017. "Design standards and technology adoption: welfare effects of increasing environmental fines when the number of firms is endogenous," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 19(2), pages 427-450, April.
    4. Pilar Beneito & Paz Coscollá-Girona & María Engracia Rochina-Barrachina & Amparo Sanchis, 2015. "Competitive Pressure and Innovation at the Firm Level," Journal of Industrial Economics, Wiley Blackwell, vol. 63(3), pages 422-457, September.
    5. Matteo Rizzolli & Luca Stanca, 2012. "Judicial Errors and Crime Deterrence: Theory and Experimental Evidence," Journal of Law and Economics, University of Chicago Press, vol. 55(2), pages 311-338.
    6. Thomas J. Miceli & Murat C. Mungan, 2021. "The limit of law: factors influencing the decision to make harmful acts illegal," Economics of Governance, Springer, vol. 22(3), pages 293-307, September.
    7. Robson Fernandes Soares & Edson Ronaldo Guarido Filho, 2021. "Anti-Corruption Enforcement and Organizations: A Narrative Review," RAC - Revista de Administração Contemporânea (Journal of Contemporary Administration), ANPAD - Associação Nacional de Pós-Graduação e Pesquisa em Administração, vol. 25(6), pages 190149-1901.
    8. Gokalp, Omer N. & Lee, Seung-Hyun & Peng, Mike W., 2017. "Competition and corporate tax evasion: An institution-based view," Journal of World Business, Elsevier, vol. 52(2), pages 258-269.
    9. Ghosh, Arghya & Kato, Takao & Morita, Hodaka, 2017. "Incremental innovation and competitive pressure in the presence of discrete innovation," Journal of Economic Behavior & Organization, Elsevier, vol. 135(C), pages 1-14.
    10. Dechenaux Emmanuel & Samuel Andrew, 2019. "Announced or Surprise Inspections and Oligopoly Competition," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 19(1), pages 1-20, January.
    11. Chopard, Bertrand & Obidzinski, Marie, 2021. "Public law enforcement under ambiguity," International Review of Law and Economics, Elsevier, vol. 66(C).
    12. Friehe Tim & Mungan Murat C., 2020. "A Note on Productive and Dynamic Inefficiencies of Intermediate Regulatory Sanctions," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 20(1), pages 1-8, January.
    13. Kjetil Telle, 2012. "Monitoring and enforcement of environmental regulations. Lessons from a natural field experiment in Norway," Discussion Papers 680, Statistics Norway, Research Department.
    14. Erkmen G. Aslim & Murat C. Mungan & Carlos I. Navarro & Han Yu, 2022. "The Effect of Public Health Insurance on Criminal Recidivism," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 41(1), pages 45-91, January.
    15. Fluet, Claude & Galbiati, Rpbertp, 2016. "Lois et normes : les enseignements de l'économie comportementale," L'Actualité Economique, Société Canadienne de Science Economique, vol. 92(1-2), pages 191-215, Mars-Juin.
    16. Tim Friehe & Thomas J. Miceli, 2017. "On Punishment Severity and Crime Rates," American Law and Economics Review, Oxford University Press, vol. 19(2), pages 464-485.
    17. Louis Kaplow, 2017. "Optimal Multistage Adjudication," NBER Working Papers 23364, National Bureau of Economic Research, Inc.
    18. Yahagi, Ken, 2021. "Law enforcement with motivated agents," International Review of Law and Economics, Elsevier, vol. 66(C).
    19. Thomas J. Miceli, 2008. "Deterrence, Incapacitation, and Repeat Offenders," Working papers 2008-44, University of Connecticut, Department of Economics.
    20. Buehler, Stefan & Nicolas Eschenbaum, 2018. "Explaining Escalating Fines and Prices: The Curse of Positive Selection," Economics Working Paper Series 1807, University of St. Gallen, School of Economics and Political Science.

    More about this item

    JEL classification:

    • K14 - Law and Economics - - Basic Areas of Law - - - Criminal Law
    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bpj:bejeap:v:16:y:2016:i:2:p:647-687:n:9. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peter Golla (email available below). General contact details of provider: https://www.degruyter.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.