Optimal Law Enforcement with Ordered Leniency

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This paper studies the design of optimal enforcement policies with ordered leniency to detect and deter harmful short-term activities committed by groups of injurers. With ordered leniency, the degree of leniency granted to an injurer who self-reports depends on his or her position in the self-reporting queue. We show that the ordered-leniency policy that induces maximal deterrence gives successively larger discounts to injurers who secure higher positions in the reporting queue. This creates a so-called race to the courthouse in which all injurers self-report promptly and, as a result, social harm is reduced. We show that the expected fine increases with the size of the group, which thus discourages the formation of large illegal enterprises. The first-best outcome is obtained with ordered leniency when the externalities associated with the harmful activities are not too great. Our findings complement Kaplow and Shavell’s results for single-injurer environments.

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