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

Author

Listed:
  • 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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    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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