Optimal Law Enforcement with Ordered Leniency

Ordered Leniency: An Experimental Study of Law Enforcement with Self-Reporting

“…In game-theoretic terms, they correspond leniency granted to an injurer is determined by his or her position in the self-reporting queue. Landeo and Spier (2018) show that granting a penalty reduction to the first injurer to report, and possibly (albeit lower) to the subsequent injurers, generates a so-called "race to the courthouse" where, in equilibrium, all injurers self-report immediately. 7 Importantly, by inducing self-reporting, ordered leniency increases the likelihood of detection of harmful acts without raising the enforcement costs.…”

“…Law enforcement agencies have established leniency policies to encourage wrongdoers to self-report, with the goals of improving detection of socially-harmful activities and strengthening deterrence. 1 A common feature of these policies is that wrongdoers who cooperate with the agency early in the process receive reduced sanctions, i.e., law enforcement agencies apply ordered-leniency mechanisms (Landeo and Spier, 2018). For instance, in 2009, the Securities and Exchange Commission (SEC) brought charges against Raj Rajaratnam and other co-conspirators for insider trading at several hedge funds including Galleon Management LP and New Castle Funds LLC.…”

“…July 16, 2012). Additional legal cases involving ordered leniency are discussed in Landeo and Spier (2018). 4 See Becker (1968) and Polinsky and Shavell (1984) for early work on law enforcement policies.…”

“…With ordered-leniency policies, early cooperators receive reduced sanctions. We replicate the strategic environment described by Landeo and Spier (2018). In theory, the optimal ordered-leniency policy depends on the refinement criterion applied in case of multiplicity of equilibria.…”

Ordered Leniency: An Experimental Study of Law Enforcement with Self-Reporting

“…stabilization of surviving cartels. 13 Landeo and Spier's (2018) theoretical framework can be a useful component in the analysis of optimal enforcement with self-reporting for harmful longterm group activities. Therefore, our experimental insights might be relevant for the design of enforcement mechanisms in antitrust environments, too.…”