Anti-Money Laundry regulation and Crime: A two-period model of money-in-the-utility-function
AbstractThe 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.
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.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 25773.
Date of creation: Aug 2010
Date of revision:
Money laundry; crime; money in utility function; money;
Find related papers by JEL classification:
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
This paper has been announced in the following NEP Reports:
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.:
- 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.
- J. Ferwerda, 2008. "The economics of crime and money laundering: does anti-money laundering policy reduce crime?," Working Papers 08-35, Utrecht School of Economics.
- Alberto Chong & Florencio Lopez-de-Silanes, 2007.
"Money Laundering and its Regulation,"
Research Department Publications
4493, Inter-American Development Bank, Research Department.
- Donato Masciandaro, 1999. "Money Laundering: the Economics of Regulation," European Journal of Law and Economics, Springer, vol. 7(3), pages 225-240, May.
- repec:ebl:ecbull:v:11:y:2007:i:3:p:1-5 is not listed on IDEAS
- Camera, Gabriele, 2001. "Dirty money," Journal of Monetary Economics, Elsevier, vol. 47(2), pages 377-415, April.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.