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Trust and Deterrence

  • Bigoni, Maria
  • Fridolfsson, Sven-Olof
  • Le Coq, Chloé
  • Spagnolo, Giancarlo

This paper presents results from a laboratory experiment on the channels through which different law enforcement strategies deter cartel formation. With leniency policies offering immunity to the first reporting party a high fine is the main determinant of deterrence, having a strong effect even when the probability of exogenous detection is zero. Deterrence appears then mainly driven by 'distrust', the fear of partners deviating and reporting. Absent leniency, the probability of detection and the expected fine matter the most, and low fines are exploited to punish defections. The results appear relevant to several other crimes sharing cartels' strategic features, including corruption and financial fraud.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 9002.

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Date of creation: Jun 2012
Date of revision:
Handle: RePEc:cpr:ceprdp:9002
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  1. Louis Kaplow & Steven Shavell, 1991. "Optimal Law Enforcement with Self-Reporting of Behavior," NBER Working Papers 3822, National Bureau of Economic Research, Inc.
  2. Steffen Huck & Hans-Theo Normann & Jörg Oechssler, 2001. "Two are Few and Four are Many: Number Effects in Experimental Oligopolies," Bonn Econ Discussion Papers bgse12_2001, University of Bonn, Germany.
  3. Nathan H. Miller, 2009. "Strategic Leniency and Cartel Enforcement," American Economic Review, American Economic Association, vol. 99(3), pages 750-68, June.
  4. Theo Offerman & Jan Potters & Joep Sonnemans, 2002. "Imitation and Belief Learning in an Oligopoly Experiment," Review of Economic Studies, Oxford University Press, vol. 69(4), pages 973-997.
  5. Jeroen Hinloopen & Adriaan R. Soetevent, 2008. "Laboratory evidence on the effectiveness of corporate leniency programs," RAND Journal of Economics, RAND Corporation, vol. 39(2), pages 607-616.
  6. Ernst Fehr, 2009. "On The Economics and Biology of Trust," Journal of the European Economic Association, MIT Press, vol. 7(2-3), pages 235-266, 04-05.
  7. Brenner, Steffen, 2009. "An empirical study of the European corporate leniency program," International Journal of Industrial Organization, Elsevier, vol. 27(6), pages 639-645, November.
  8. Gary S. Becker, 1968. "Crime and Punishment: An Economic Approach," Journal of Political Economy, University of Chicago Press, vol. 76, pages 169.
  9. Ernst Fehr & John List, 2004. "The hidden costs and returns of incentives - trust and trustworthiness among ceos," Artefactual Field Experiments 00044, The Field Experiments Website.
  10. Garoupa, Nuno, 2007. "Optimal law enforcement and criminal organization," Journal of Economic Behavior & Organization, Elsevier, vol. 63(3), pages 461-474, July.
  11. Michael Kosfeld & Armin Falk, 2006. "The Hidden Costs of Control," American Economic Review, American Economic Association, vol. 96(5), pages 1611-1630, December.
  12. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  13. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2005. "Trusting the Stock Market," NBER Working Papers 11648, National Bureau of Economic Research, Inc.
  14. Massimo Motta & Michele Polo, . "Leniency Programs and Cartel Prosecution," Working Papers 150, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  15. Gary Charness & Martin Dufwenberg, 2004. "Promises and Partnership," Levine's Bibliography 122247000000000001, UCLA Department of Economics.
  16. Charness, Gary & Dufwenberg, Martin, 2003. "Promises & Partnership," Research Papers in Economics 2003:3, Stockholm University, Department of Economics.
  17. Heski Bar-Isaac & Mariagiovanna Baccara, 2006. "How to Organize Crime," Working Papers 06-07, New York University, Leonard N. Stern School of Business, Department of Economics.
  18. Crawford, Vincent, 1998. "A Survey of Experiments on Communication via Cheap Talk," Journal of Economic Theory, Elsevier, vol. 78(2), pages 286-298, February.
  19. Matthias Blonski & Peter Ockenfels & Giancarlo Spagnolo, 2011. "Equilibrium Selection in the Repeated Prisoner's Dilemma: Axiomatic Approach and Experimental Evidence," American Economic Journal: Microeconomics, American Economic Association, vol. 3(3), pages 164-92, August.
  20. repec:oup:restud:v:69:y:2002:i:4:p:973-97 is not listed on IDEAS
  21. Spagnolo, Giancarlo, 2004. "Divide et Impera: Optimal Leniency Programmes," CEPR Discussion Papers 4840, C.E.P.R. Discussion Papers.
  22. Berg Joyce & Dickhaut John & McCabe Kevin, 1995. "Trust, Reciprocity, and Social History," Games and Economic Behavior, Elsevier, vol. 10(1), pages 122-142, July.
  23. Hamaguchi, Yasuyo & Kawagoe, Toshiji & Shibata, Aiko, 2009. "Group size effects on cartel formation and the enforcement power of leniency programs," International Journal of Industrial Organization, Elsevier, vol. 27(2), pages 145-165, March.
  24. Jana Krajcova & Andreas Ortmann, 2008. "Testing Leniency Programs Experimentally: The Impact of “Natural” Framing," CERGE-EI Working Papers wp372, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
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