Leniency policies and illegal transactions |
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| Affiliation: | 1. Lear - Laboratorio di economia, antitrust, regolamentazione, Italy;2. Stockholm School of Economics, Sweden;3. Consip Research Unit, Rome, Italy;4. C.E.P.R., London, UK;1. School of Economics, Peking University, Beijing 100871, China;2. School of Economics and Management, Tsinghua University, Beijing 100084, China |
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| Abstract: | We study the consequences of leniency—reduced legal sanctions for wrongdoers who spontaneously self-report to law enforcers—on sequential, bilateral, illegal transactions, such as corruption, manager–auditor collusion, or drug deals. It is known that leniency helps deterring illegal relationships sustained by repeated interaction. Here we find that—when not properly designed—leniency may simultaneously provide an effective governance mechanism for occasional sequential illegal transactions that would not be feasible in its absence. |
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