Essays on Institutional Economics: On Crime and Enforcement

This thesis consists of three chapters on crime and enforcement. In the first chapter, we emphasize the role of leniency programs as a legal tool to fight illegal activities involving bribery of a public official. We show that a not-well-designed leniency program increases the level of illegal activity, and may imply higher levels of corruption. A legislator, who aims to reduce the levels of crime and the related corruption, sets the leniency rate to its minimum level and allows only the criminal to apply for leniency when leniency is offered after the detection of the illegal activity. In the second chapter, we study the impact of the loss of corporate reputation after the detection of a corporate crime on the design of compliance program and the managerial incentives within the firm. We show that if the return from the crime and the reputational loss are high, the firm relies on a "window-dressing" compliance program, leading to inefficient investment in compliance and high levels of corporate misconduct. When the reputational loss is moderate, the compliance program exhibits a deterrent effect on corporate crime. If the crime leads to low (high) returns and large (low) reputational loss, the firm will not implement a compliance program. In the third chapter, we present a comprehensive review of the literature that studied the corporate crime. We study the incentives and the deterrents that affect the firm’s decision to undertake a corporate crime. We analyze the determinants that stem from the agency relationship between the firm and the manager, namely the managerial incentives, organizational structure and the role of senior managers. Second, we consider the determinants that are exogenous to the firm but affect its incentives to commit the corporate crime. We consider legal deterrents, corporate reputation and corporate social responsibility.