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Trust, Leniency and Deterrence

Author

Listed:
  • 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)

Abstract

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.

Suggested Citation

  • Bigoni, Maria & Fridolfsson, Sven-Olof & Le Coq, Chloe & Spagnolo, Giancarlo, 2011. "Trust, Leniency and Deterrence," Working Paper Series 859, Research Institute of Industrial Economics, revised 11 Dec 2014.
  • Handle: RePEc:hhs:iuiwop:0859
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    References listed on IDEAS

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    More about this item

    Keywords

    Antitrust; Betrayal; Collusion; Corruption; Distrust; Fraud; Organized Crime; Whistleblowers;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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