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Trust, Leniency and Deterrence

  • Bigoni, Maria

    ()

    (University of Bologna)

  • Fridolfsson, Sven-Olof

    ()

    (Research Institute of Industrial Economics (IFN))

  • Le Coq, Chloe

    ()

    (Stockholm School of Economics)

  • Spagnolo, Giancarlo

    ()

    (University of Rome)

This paper presents results from a laboratory experiment studying 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 to be mainly driven by ‘distrust’; here, the fear of partners deviating and reporting. Absent leniency, the probability of detection and the expected fine matter more, and low fines are exploited to punish defections. The results appear relevant to several other forms of crimes that share cartels’ strategic features, including corruption and financial fraud.

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Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 859.

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Length: 38 pages
Date of creation: 17 Jan 2011
Date of revision: 11 Dec 2014
Handle: RePEc:hhs:iuiwop:0859
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