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Resistance is Futile: An Essay in Crime and Commitment

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  • M. Martin Boyer

Abstract

This paper studies a principal-agent relationship in a contractual crime setting. Suppose an agent and a principal sign a contract stipulating some transfer of funds from one player (say the agent) to the next (the principal) contingent on the state of the world announced by the first player. In an economy where there are two types of agents, the Truths (who always report the true state of the world) and the Dares (who dare misreport the true state of the world), we show that no separating contract exists. The optimal pooling contract can then be divided into two parts. For a proportion of Dares (x) smaller than some x * , the agents expected utility decreases as the proportion of Dares (x) increases. For a proportion greater than x * , the agents expected utility is independent of the exact proportion of Dares. In both cases the punishment inflicted to Dares convicted of a crime has no impact on the optimal contract. Investment in prevention is always beneficial if xx * , investment in prevention may have no impact whatsoever on crime, depending on prevention technology and the initial proportion of Dares. Finally, allowing agents to choose their type before the game starts allows us to find the long-run equilibrium proportion of Dares in the economy. Ce document de travail étudie un problème de principal-agent dans un contexte que nous appelons de crime contractuel. Supposons qu un agent et un principal s entendent sur un contrat qui stipule un transfert de fonds d un joueur (disons l agent) vers l autre en fonction de l état de la nature révélée par le premier joueur. Dans une économie où il existe deux types d agents, les Véridiques (qui disent toujours la vérité quant à l état de la nature) et les Changeants (qui annoncent stratégiquement le vrai état ou non), nous montrons qu il n existe pas de contrat séparateur. Le contrat de pooling peut ainsi être découpé en deux parties. Si la proportion de Changeants (x) dans l économie est inférieure à un x * donné, alors l utilité espérée des agents diminue avec une augmentation de la proportion de Changeants. Pour une proportion de Changeants supérieure à x * ,l utilité espérée des agents est indépendante de la proportion exacte de Changeants dans l économie. Dans les deux cas, la pénalité infligée aux Changeants pris en flagrant délit n a aucun impact sur la forme du contrat optimal. Investir en prévention est toujours bénéfique si xx * , dépendant de la proportion initiale de Changeants et de la technologie de prévention, puisque la criminalité y est indépendante de la proportion de Changeants. Enfin, en permettant aux agents de choisir leur type nous trouvons l équilibre de long terme d éléments criminels dans l économie.

Suggested Citation

  • M. Martin Boyer, 2001. "Resistance is Futile: An Essay in Crime and Commitment," CIRANO Working Papers 2001s-58, CIRANO.
  • Handle: RePEc:cir:cirwor:2001s-58
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    File URL: http://www.cirano.qc.ca/files/publications/2001s-58.pdf
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    References listed on IDEAS

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    1. Boadway, Robin & Marceau, Nicolas & Marchand, Maurice, 1996. "Time-Consistent Criminal Sanctions," Public Finance = Finances publiques, , vol. 51(2), pages 149-165.
    2. Gary S. Becker, 1974. "Crime and Punishment: An Economic Approach," NBER Chapters,in: Essays in the Economics of Crime and Punishment, pages 1-54 National Bureau of Economic Research, Inc.
    3. Besanko, David & Spulber, Daniel F, 1989. "Delegated Law Enforcement and Noncooperative Behavior," Journal of Law, Economics, and Organization, Oxford University Press, vol. 5(1), pages 25-52, Spring.
    4. Dezhbakhsh, Hashem & Rubin, Paul H, 1998. "Lives Saved or Lives Lost? The Effects of Concealed-Handgun Laws on Crime," American Economic Review, American Economic Association, vol. 88(2), pages 468-474, May.
    5. Dilip Mookherjee & Ivan Png, 1989. "Optimal Auditing, Insurance, and Redistribution," The Quarterly Journal of Economics, Oxford University Press, vol. 104(2), pages 399-415.
    6. Picard, Pierre, 1996. "Auditing claims in the insurance market with fraud: The credibility issue," Journal of Public Economics, Elsevier, vol. 63(1), pages 27-56, December.
    7. Black, Dan A & Nagin, Daniel S, 1998. "Do Right-to-Carry Laws Deter Violent Crime?," The Journal of Legal Studies, University of Chicago Press, vol. 27(1), pages 209-219, January.
    8. Ehrlich, Isaac, 1973. "Participation in Illegitimate Activities: A Theoretical and Empirical Investigation," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 521-565, May-June.
    9. Douglas Gale & Martin Hellwig, 1985. "Incentive-Compatible Debt Contracts: The One-Period Problem," Review of Economic Studies, Oxford University Press, vol. 52(4), pages 647-663.
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    More about this item

    Keywords

    Crime and Crime prevention; Non-commitment; Moral hazard; Adverse selection; Criminalité et prévention; Absence d'engagement; Aléa moral; Anti-sélection;

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory

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