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Private and Public Control of Management

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Author Info

  • Charles Angelucci
  • Martijn A. Han

Abstract

This paper investigates the design of a leniency policy to fight corporate crime. We explicitly take into account the agency problem within the firm. We model this through a three-tier hierarchy: authority, shareholder, and manager. The manager may breach the law and report evidence to the authority. The shareholder writes the manager’s incentive scheme, monitors him, and possibly reports evidence to the authority. Finally, the authority designs a sanctioning/leniency policy that deters corporate crime at the lowest possible cost. The authority designs its policy trying to both (i) exacerbate agency problems within non-compliant firms and (ii) alleviate agency problems within compliant firms. We find that depending on the authority’s ability to punish the manager, the authority may wish to instigate a “within-firm race to the courthouse”. We also provide comparative statics, carry a welfare analysis and discuss policy implications.

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File URL: http://sfb649.wiwi.hu-berlin.de/papers/pdf/SFB649DP2012-058.pdf
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Bibliographic Info

Paper provided by Sonderforschungsbereich 649, Humboldt University, Berlin, Germany in its series SFB 649 Discussion Papers with number SFB649DP2012-058.

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Length: 40 pages
Date of creation: Oct 2012
Date of revision:
Handle: RePEc:hum:wpaper:sfb649dp2012-058

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Related research

Keywords: corporate crime; white-collar crime; leniency; compliance; antitrust;

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Cited by:
  1. Angelucci, Charles & Russo, Antonio, 2012. "Moral Hazard in Hierarchies and Soft Information," TSE Working Papers 12-343, Toulouse School of Economics (TSE).

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