The John M. Olin Center

Paper Abstract

Untitled Document

88. Masaki Iwasaki, A Model of Corporate Self-Policing and Self-Reporting, 08/2020; forthcoming in International Review of Law and Economics (2020).

Abstract: What are the effects of corporate self-reporting schemes on deterrence of corporate crime? This paper presents a model to analyze this question for the case in which a firm’s manager, who has stock-based compensation, commits a corporate crime and the firm conducts self-policing and self-reporting. Corporate self-reporting schemes may enhance deterrence if the level of corporate leniency is within a certain range. But the level of corporate leniency has a non-monotonic relationship with deterrence in that range: as the level of corporate sanctions decreases, receding from the upper limit of the range, the probability of crime occurring first decreases and then increases. The paper also considers the case in which both individual and corporate self-reporting programs are introduced. The social desirability of individual self-reporting schemes depends on whether firms can commit to a certain level of self-policing efforts.