Optimal Accomplice-Witnesses Regulation under Asymmetric Information
AbstractWe study the problem of a Legislator designing immunity for privately informed cooperating accomplices. Our objective is to highlight the positive (vertical) externality between expected returns from crime and the information rent that must be granted by the Legislator to whistleblowers in order to break their code of silence (omertà) and elicit truthful information revelation. We identify the accomplices' incentives to release distorted information and characterize the second-best policy limiting this behavior. The central finding is that this externality leads to a second-best policy that purposefully allows whistleblowers not to disclose part of their private information. We also show that accomplices must fulfill minimal information requirements to be admitted into the program (rationing), that a bonus must be awarded to accomplices providing more reliable information and that, under some conditions, rewarding a self-reporting `boss' can increase efficiency. These results are consistent with a number of widespread legislative provisions.
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Bibliographic InfoPaper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 304.
Date of creation: 11 Jan 2012
Date of revision:
Accomplice-witnesses; Adverse Selection; Leniency; Organized Crime;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-01-25 (All new papers)
- NEP-CTA-2012-01-25 (Contract Theory & Applications)
- NEP-REG-2012-01-25 (Regulation)
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