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Punishing Financial Crimes: The Impact of Prison Sentences on Defendants and Their Colleagues

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  • Kristiina Huttunen
  • Martti Kaila
  • David C. Macdonald
  • Emily Nix

Abstract

Financial crimes are costly to society but less severely punished than other nonviolent crimes. We investigate whether prison sentences reduce financial crimes. Using random assignment of judges in Finland to identify causal impacts, we find a prison sentence reduces defendant reoffending by 42.9 percentage points three years postsentencing. Given prior evidence of financial misconduct "contagion," we also explore spillovers on colleagues. A prison sentence reduces the likelihood that a financial crime defendant's colleagues commit crimes by 27 percentage points, suggesting broader deterrent effects of harsher punishments, but only for fraud cases. Last, we show financial crimes are not victimless crimes.

Suggested Citation

  • Kristiina Huttunen & Martti Kaila & David C. Macdonald & Emily Nix, 2026. "Punishing Financial Crimes: The Impact of Prison Sentences on Defendants and Their Colleagues," American Economic Journal: Economic Policy, American Economic Association, vol. 18(2), pages 477-510, May.
    • Handle: RePEc:aea:aejpol:v:18:y:2026:i:2:p:477-510
    DOI: 10.1257/pol.20240121
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    References listed on IDEAS

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    1. Lawrence Katz & Steven D. Levitt & Ellen Shustorovich, 2003. "Prison Conditions, Capital Punishment, and Deterrence," American Law and Economics Review, American Law and Economics Association, vol. 5(2), pages 318-343, August.
    2. Brigham Frandsen & Lars Lefgren & Emily Leslie, 2023. "Judging Judge Fixed Effects," American Economic Review, American Economic Association, vol. 113(1), pages 253-277, January.
    3. Jesse M. Shapiro, 2007. "Do Harsher Prison Conditions Reduce Recidivism? A Discontinuity-based Approach," American Law and Economics Review, American Law and Economics Association, vol. 9(1), pages 1-29.
    4. Manasi Deshpande & Michael Mueller-Smith, 2022. "Does Welfare Prevent Crime? the Criminal Justice Outcomes of Youth Removed from Ssi [“Misdemeanor Prosecution,”]," The Quarterly Journal of Economics, Oxford University Press, vol. 137(4), pages 2263-2307.
    5. Mark Egan & Gregor Matvos & Amit Seru, 2019. "The Market for Financial Adviser Misconduct," Journal of Political Economy, University of Chicago Press, vol. 127(1), pages 233-295.
    6. Manasi Deshpande & Michael G. Mueller-Smith, 2022. "Does Welfare Prevent Crime? The Criminal Justice Outcomes of Youth Removed From SSI," NBER Working Papers 29800, National Bureau of Economic Research, Inc.
    7. Francesco Drago & Roberto Galbiati & Pietro Vertova, 2011. "Prison Conditions and Recidivism," American Law and Economics Review, American Law and Economics Association, vol. 13(1), pages 103-130.
    8. Rafael Di Tella & Ernesto Schargrodsky, 2013. "Criminal Recidivism after Prison and Electronic Monitoring," Journal of Political Economy, University of Chicago Press, vol. 121(1), pages 28-73.
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    More about this item

    JEL classification:

    • K14 - Law and Economics - - Basic Areas of Law - - - Criminal Law
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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