The Social Cost of Blackmail
AbstractDespite the fact that blackmail constitutes a voluntary transaction between two parties, it is deemed to be a criminal offense in most legal systems. The traditional economic approach to this so-called 'paradox of blackmail’ emphasizes welfare loss generated by the costly rent-seeking activities of potential blackmailers as the primary justification for its criminalization. This argument, however, does not extend to cases in which potentially damaging information about the victim was acquired by the blackmailer at no cost. It also does not seem to shed light on a related puzzle: why is it legal for a potential victim to bribe the other party with the purpose of achieving the same final outcome (suppression of information) as in the case of blackmail? This paper addresses these questions in a simple model of bargaining under asymmetric information, which is used as a unified framework for studying both blackmail and bribery. Under asymmetric information the bargaining outcome is not efficient, regardless of the distribution of the bargaining power. However, when the blackmailer is a monopolist seller of the information, inefficiency results from his demands being too high relative to the social optimum, providing justification for the practice of penalizing blackmail. On the other hand, when a victim is the monopolist buyer of the information, the equilibrium offer is inefficiently low, implying that its punishment would be counterproductive. These arguments provide further support for the claim that under reasonable assumptions the criminalization of blackmail can be justified on efficiency grounds.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by De Gruyter in its journal Review of Law & Economics.
Volume (Year): 7 (2011)
Issue (Month): 1 (December)
Contact details of provider:
Web page: http://www.degruyter.com
Other versions of this item:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gomez, Fernando & Ganuza, Juan-Jose, 2002. "Civil and criminal sanctions against blackmail: an economic analysis," International Review of Law and Economics, Elsevier, vol. 21(4), pages 475-498, May.
- Lucian Arye Bebchuk, 1984. "Litigation and Settlement under Imperfect Information," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 404-415, Autumn.
- Andrew F. Daughety & Jennifer F. Reinganum, 1994.
"Settlement Negotiations with Two-Sided Asymmetric Information: Model Duality, Information Distribution and Efficiency,"
Game Theory and Information
- Daughety, Andrew F. & Reinganum, Jennifer F., 1994. "Settlement negotiations with two-sided asymmetric information: Model duality, information distribution, and efficiency," International Review of Law and Economics, Elsevier, vol. 14(3), pages 283-298, September.
- Fudenberg, Drew & Levine, David K & Tirole, Jean, 1987.
"Incomplete Information Bargaining with Outside Opportunities,"
The Quarterly Journal of Economics,
MIT Press, vol. 102(1), pages 37-50, February.
- Tirole, Jean & Levine, David & Fudenberg, Drew, 1987. "Incomplete Information Bargaining with Outside Opportunities," Scholarly Articles 3196301, Harvard University Department of Economics.
- Drew Fudenberg & David K. Levine & Jean Tirole, 1987. "Incomplete Information Bargaining with Outside Opportunities," Levine's Working Paper Archive 229, David K. Levine.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:reading lists or Wikipedia pages:Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Golla).
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.