Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 456: The Effects of Leniency on Illegal Transactions: How (Not) to Fight Corruption

Paolo Buccirossi () and Giancarlo Spagnolo ()
Additional contact information
Paolo Buccirossi: Lear - Laboratory of Economics, Antitrust and Regulation, Postal: Via Belisario 7, 00187 Roma
Giancarlo Spagnolo: Stockholm School of Economics, University of Mannheim and CEPR, Postal: Stockholm School of Economics, P.O. Box 6501, S-113 83 Stockholm, Sweden

Abstract: We study the consequences of 'leniency' - reduced legal sanctions for wrongdoers who spontaneously self-report to law enforcers - on corruption, drug dealing, and other forms of sequential, bilateral, illegal trade. We find that when not properly designed, leniency may be highly counterproductive. In reality leniency is typically "moderate," in the sense of only reducing, or at best cancelling the sanctions for the self-reporting party. Moderate leniency may greatly facilitate the enforcement of long-term illegal trade relations, and may even provide an effective enforcement mechanism for occasional (one-shot) illegal transactions, which would not be enforceable otherwise.

Keywords: Law enforcement; Self-reporting; Corruption; Crime; Illegal trade; Drug dealing.

JEL-codes: K00; K21; K42

31 pages, July 31, 2001

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