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The Effects of Leniency on Illegal Transactions: How (Not) to Fight Corruption

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Abstract

We study the consequences of 'leniency' - reduced legal sanctions for wrongdoers who spontaneously self-report to law enforcers - on corruption, drug dealing, and other forms of sequential, bilateral, illegal trade. We find that when not properly designed, leniency may be highly counterproductive. In reality leniency is typically "moderate," in the sense of only reducing, or at best cancelling the sanctions for the self-reporting party. Moderate leniency may greatly facilitate the enforcement of long-term illegal trade relations, and may even provide an effective enforcement mechanism for occasional (one-shot) illegal transactions, which would not be enforceable otherwise.

Suggested Citation

  • Buccirossi, Paolo & Spagnolo, Giancarlo, 2001. "The Effects of Leniency on Illegal Transactions: How (Not) to Fight Corruption," SSE/EFI Working Paper Series in Economics and Finance 456, Stockholm School of Economics.
    • Handle: RePEc:hhs:hastef:0456
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    Cited by:

    1. Leliefeld, D. & Motchenkova, E., 2007. "To Protect in Order to Serve : Adverse Effects of Leniency Programs in View of Industry Asymmetry," Other publications TiSEM cdc81d9b-34c3-4e1c-85b8-1, Tilburg University, School of Economics and Management.
    2. Zhijun Chen & Patrick Rey, 2013. "On the Design of Leniency Programs," Journal of Law and Economics, University of Chicago Press, vol. 56(4), pages 917-957.
    3. Ulrich Blum & Nicole Steinat & Michael Veltins, 2008. "On the rationale of leniency programs: a game-theoretical analysis," European Journal of Law and Economics, Springer, vol. 25(3), pages 209-229, June.
    4. Marco Pagano & Giovanni Immordino, 2007. "Optimal Regulation of Auditing," CESifo Economic Studies, CESifo Group, vol. 53(3), pages 363-388, September.
    5. Catarina Marvão & Giancarlo Spagnolo, 2018. "Cartels and leniency: Taking stock of what we learnt," Chapters, in: Luis C. Corchón & Marco A. Marini (ed.), Handbook of Game Theory and Industrial Organization, Volume II, chapter 4, pages 57-90, Edward Elgar Publishing.
    6. Nicolas Jacquemet, 2005. "La corruption comme une imbrication de contrats : Une revue de la littérature microéconomique," Working Papers 2005-29, Center for Research in Economics and Statistics.
    7. Spagnolo, Giancarlo & Nyreröd, Theo, 2019. "Financial Incentives for Whistleblowers: A Short Survey," SITE Working Paper Series 50, Stockholm School of Economics, Stockholm Institute of Transition Economics.
    8. Spagnolo, Giancarlo, 2002. "Globalization and Cooperative Relations," CEPR Discussion Papers 3522, C.E.P.R. Discussion Papers.
    9. Spagnolo, Giancarlo & Buccirossi, Paolo, 2006. "Optimal Fines in the Era of Whistleblowers," CEPR Discussion Papers 5465, C.E.P.R. Discussion Papers.

    More about this item

    Keywords

    Law enforcement; Self-reporting; Corruption; Crime; Illegal trade; Drug dealing.;
    All these keywords.

    JEL classification:

    • K00 - Law and Economics - - General - - - General (including Data Sources and Description)
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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