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A microeconomic model of opportunistic financial crimes: prosecutorial strategy when firms are too big to jail

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  • Werle, Nick

Abstract

In the cases of corporate crime, US prosecutors can lodge charges against the corporation, its managers, or both. However, the emergence of systemically important firms, most notably in the financial sector, constrains prosecutors. This paper develops a new model of corporate criminal liability and shows how the Too Big To Jail problem reduces the deterrence effect of a crime control policy relying primarily on large corporate fines. Furthermore, this paper shows how corporate criminal liability may not incentivize a Too Big to Jail firm to invest in internal controls and may even attempt to subsidize an employees’ criminal activity. In the presence of Too Big to Jail firms, prosecutors should shift resources toward prosecutions of individual managers, so they bear a substantial personal risk from dealing dishonestly.

Suggested Citation

  • Werle, Nick, 2015. "A microeconomic model of opportunistic financial crimes: prosecutorial strategy when firms are too big to jail," LSE Research Online Documents on Economics 68261, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:68261
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    References listed on IDEAS

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    1. Gai, Prasanna & Haldane, Andrew & Kapadia, Sujit, 2011. "Complexity, concentration and contagion," Journal of Monetary Economics, Elsevier, vol. 58(5), pages 453-470.
    2. Nuno Garoupa, 2000. "Corporate criminal law and organization incentives: a managerial perspective," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 21(6), pages 243-252.
    3. Polinsky, A. Mitchell & Shavell, Steven, 1993. "Should employees be subject to fines and imprisonment given the existence of corporate liability?," International Review of Law and Economics, Elsevier, vol. 13(3), pages 239-257, September.
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    JEL classification:

    • F3 - International Economics - - International Finance
    • G3 - Financial Economics - - Corporate Finance and Governance

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