The Right Carrot for an Unruly Jungle

Abstract

This thesis examines the U.S. Department of Justice leniency program setup involving both corporate and individual leniency. Specifically, the interaction between corporate and individual leniency programs in concurrent operation, the design of optimal leniency program structure to elicit corporate leniency applications and the behaviour of economic agents subject to such programs comprise the primary directions of this thesis. In addressing corporate malfeasance under the option to apply for leniency, the intra-firm interplay of agents is modeled as a dynamic game of incomplete information. The principle findings are that if agents are symmetric in their access to leniency the concurrent operation of corporate and individual leniency programs is suboptimal as the presence of the individual leniency program detracts from corporate leniency applications due to a reallocation of incentives to report. On the other hand, under asymmetric access it is in fact optimal to utilise both leniency programs concurrently as there is no distortion in incentives to report but rather a threat effect in motion. Agent access to these leniency programs is imperative in determining the success of the combinatory policy structure.