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Anti-Money Laundry regulation and Crime: A two-period model of money-in-the-utility-function

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Author Info

  • Fanta, F
  • Mohsin, H

Abstract

The paper presents a two period model with two types of money i.e. dirty and cleans (legal) money in utility function. Clean money is earned from working in legal sector and dirty from illegal sector. Our two-two period model reveals that an increase in labor wage in legal sector unambiguously decease the labor hours allocated for illegal sector by increasing the opportunity cost for illegal activities. However, the crime-reducing impact of anti-money laundry regulation and the probability of the agent to be caught require both parameters should be above some threshold. This finding is extension to the existing literature. This threshold is a function of the marginal rate of substitution of ‘dirty’ money for consumption and the responsiveness of illegal income to the policy parameter. Higher threshold implies the need for tougher anti-money laundry regime. Therefore, the marginal rate of substitution between ‘dirty’ money and consumption, and the elasticity of illegal income to the policy parameter are the key in the formulation of anti money laundering policy.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 25773.

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Date of creation: Aug 2010
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Handle: RePEc:pra:mprapa:25773

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Keywords: Money laundry; crime; money in utility function; money;

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  1. Ferwerda Joras, 2009. "The Economics of Crime and Money Laundering: Does Anti-Money Laundering Policy Reduce Crime?," Review of Law & Economics, De Gruyter, vol. 5(2), pages 903-929, December.
  2. Alberto Chong & Florencio Lopez-de-Silanes, 2007. "Money Laundering and its Regulation," Research Department Publications 4493, Inter-American Development Bank, Research Department.
  3. Donato Masciandaro, 1999. "Money Laundering: the Economics of Regulation," European Journal of Law and Economics, Springer, vol. 7(3), pages 225-240, May.
  4. repec:ebl:ecbull:v:11:y:2007:i:3:p:1-5 is not listed on IDEAS
  5. Camera, Gabriele, 2001. "Dirty money," Journal of Monetary Economics, Elsevier, vol. 47(2), pages 377-415, April.
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