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Anti-Money Laundry regulation and Crime: A two-period model of money-in-the-utility-function

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Listed:
  • Fanta, F
  • Mohsin, H

Abstract

The paper presents a two period model with two types of money i.e. dirty and cleans (legal) money in utility function. Clean money is earned from working in legal sector and dirty from illegal sector. Our two-two period model reveals that an increase in labor wage in legal sector unambiguously decease the labor hours allocated for illegal sector by increasing the opportunity cost for illegal activities. However, the crime-reducing impact of anti-money laundry regulation and the probability of the agent to be caught require both parameters should be above some threshold. This finding is extension to the existing literature. This threshold is a function of the marginal rate of substitution of ‘dirty’ money for consumption and the responsiveness of illegal income to the policy parameter. Higher threshold implies the need for tougher anti-money laundry regime. Therefore, the marginal rate of substitution between ‘dirty’ money and consumption, and the elasticity of illegal income to the policy parameter are the key in the formulation of anti money laundering policy.

Suggested Citation

  • Fanta, F & Mohsin, H, 2010. "Anti-Money Laundry regulation and Crime: A two-period model of money-in-the-utility-function," MPRA Paper 25773, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:25773
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    File URL: https://mpra.ub.uni-muenchen.de/25773/1/MPRA_paper_25773.pdf
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    References listed on IDEAS

    as
    1. Ferwerda Joras, 2009. "The Economics of Crime and Money Laundering: Does Anti-Money Laundering Policy Reduce Crime?," Review of Law & Economics, De Gruyter, vol. 5(2), pages 903-929, December.
    2. Donato Masciandaro, 1999. "Money Laundering: the Economics of Regulation," European Journal of Law and Economics, Springer, vol. 7(3), pages 225-240, May.
    3. Alberto Chong & Florencio Lopez-De-Silanes, 2015. "Money Laundering and Its Regulation," Economics and Politics, Wiley Blackwell, vol. 27(1), pages 78-123, March.
    4. Camera, Gabriele, 2001. "Dirty money," Journal of Monetary Economics, Elsevier, vol. 47(2), pages 377-415, April.
    5. repec:ebl:ecbull:v:11:y:2007:i:3:p:1-5 is not listed on IDEAS
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    More about this item

    Keywords

    Money laundry; crime; money in utility function; money;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy

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