Lie aversion and self-reporting in optimal law enforcement

Regulatory agencies are increasingly establishing voluntary self-reporting programs both as an investigative tool and to encourage regulated firms to commit to policing themselves. We investigate whether voluntary self-reporting can reliably indicate effective self-policing efforts that might provide opportunities for enforcement efficiencies. We find that regulators used self-reports of legal violations as a heuristic for identifying firms that are effectively policing their own operations, shifting enforcement resources away from those that voluntarily disclose. We also find that these firms that voluntarily disclosed regulatory violations and committed to self-policing improved their regulatory compliance and environmental performance, which suggests that the enforcement relief they received was warranted. Collectively, our results suggest that self-reporting can be a useful tool for reliably identifying and leveraging the voluntary self-policing efforts of regulated companies.

Economics Letters, 2021

We extend the experimental design by Fischbacher and Föllmi-Heusi (2013) to examine lying behavior on behalf of others, eliminating all possible incentives apart from social preferences. We compare the prevalence of misreporting in situations where the monetary gain either goes to the decision-maker or to an anonymous other participant. Overall we observe lower levels of lying for others compared to for oneself, however, a significant number of participants were willing to lie to increase another participant's payoff, with no economic incentive to do so. We find no partial lying for others but rather two extremes: either complete honesty or maximal lying.

We studied deceptive decision making in hypothetical scenarios that involved risk of being caught of deceiving, or a penalty after being caught of deceiving, or both. We found that the deception rate was the lowest in the scenarios involving both the risk and the penalty. Our hierarchical model for deception suggests that in balancing the possible benefits from deception, the personal discomfort of getting caught is as large or larger than the inherent aversion to deception.

We investigate the intrinsic motivation of individuals to report, and thereby sanction, fellow group members who lie for personal gain. We further explore the changes in lying and reporting behavior that result from giving individuals a say in who joins their group. We find that enough individuals are willing to report lies such that in fixed groups lying is unprofitable. However, we also find that when groups can select their members, individuals who report lies are generally shunned, even by groups where lying is absent. This facilitates the formation of dishonest groups where lying is prevalent and reporting is nonexistent.

European Accounting Review, 2018

Many countries use tax-related whistleblowing programs, but the evidence on these programs suggests information provided by whistleblowers yields modest tax collections. However, when every citizen could become a whistleblower, deterrence from tax evasion can by itself increase tax collections. We find that tax collections significantly increased after the introduction of the whistleblowing mechanism in Israel in February 2013, although this mechanism directly yielded little or no tax collections. In support of the hypothesis that deterrence led to the increase in tax collections, we find that collections increased in industries with high tax-evasion risk, but not in industries with low tax-evasion risk. Furthermore, the increase in tax collections occurred in corporations, where the timing and magnitude of tax payments are more discretionary, but not from employees, for whom employers directly deduct taxes. Eventually, following reports that the whistleblowing mechanism is ineffective, deterrence diminished and tax collections decreased, suggesting the deterrence effect was temporary.

SSRN Electronic Journal, 2014

We empirically investigate the determinants of self-reporting under the European corporate leniency program. Applying a data set consisting of 442 firm groups that participated in 76 cartels decided by the European Commission between 2000 and 2011, we find that the probability of a firm becoming the chief witness increases with its character as repeat offender, the size of the expected basic fine, the number of countries active in one group as well as the size of the firm's share in the cartelized market. Our results have important implications for an effective prosecution of anti-cartel law infringers.

2013

Currently self-reporting schemes have become an important tool for law enforcement. This thesis analyzes self-reporting under situations where the authority faces individuals that may not report truthfully. I show that when self-reporters are not truth tellers deterrence plays an important role to acquire information about the true value of the harm/crime. Two main conclusions arise. First, when the authority faces individuals who may partially self-report, the optimal design of self-reporting programs should include some level of deterrence in order obtain information about the true harm that has been committed. Second, self-reporting are efficient when individuals are induced to report truthfully. In particular, social welfare and the sanction for misreporting have a positive relation when expected damage is high iii

Journal of Law, Economics, and Organization, 2009

This paper argues that the law should sometimes encourage offenders to incur costs in order to avoid punishment, or, at the least, should not discourage such efforts. Avoidance efforts, such as concealment of evidence, perjury, or obstruction of justice, are generally deemed socially undesirable because they waste real resources and reduce deterrence. However, since avoidance efforts are also costly to offenders, they may substitute for socially costlier punishments such as imprisonment. If the resulting savings in punishment costs outweigh the social harm associated with less deterrence or the additional enforcement costs required for maintaining the same level of deterrence, then avoidance efforts are socially desirable. This, however, does not imply that punishing avoidance or otherwise increasing its private costs or decreasing its productivity is socially undesirable. Rather, it suggests that such measures should discourage avoidance as little as possible or even encourage it. This way, the social costs of avoidance can be reduced while its social benefits are maintained. This paper also casts doubt on the argument that sanctions for the underlying offense should generally not be maximal if avoidance is present. It shows that this result holds only if fines are the sole form of punishment. Otherwise, if optimal punishment utilizes both fines and imprisonment, fines should be maximal. Similarly, if imprisonment is the sole form of punishment, it should be maximal as well. The latter result is another manifestation of the social desirability of encouraging avoidance efforts.

2006

Random accidents can be contained by collective penalties. These penalties are not likely to be enforced but rather induce self-reporting that enhances welfare due to early containment. Self-reporting under collective penalties increases overall welfare, but may increase expected environmental cost. Even when regulation is constrained by an upper limit on the acceptable collective penalty, the threat of collective penalties can induce an incentive-compatible mutual insurance scheme under which a side-payment is made to the agent that self-reports an accident. This self-reporting mechanism is welfareimproving, but first-best outcomes can only be obtained when the collective penalty is unconstrained, or when an honor system applies. In cases when there is a new externality that requires fast response (avian flu), collective penalties can compliment or substitute for monitoring. Résumé : Pénalités collectives-incitations à l'auto-déclaration Nous étudions le rôle des pénalités collectives pour donner des incitations à déclarer un accident environnemental, dans un modèle d'agents hétérogènes et dans lequel les inspections sont irréalisables. Une déclaration immédiate d'un accident permet au régulateur de prendre des mesures pour minimiser le coût social de l'accident (en effet, sans une auto-déclaration, des problèmes d'information créent des délais dans la réparation du dommage). Nous démontrons l'impact distributif d'une politique d'autodéclaration des dommages, ce qui pourrait expliquer la réticence des associations environnementales envers une telle politique. Ensuite nous analysons le cas où il existe une limite supérieure sur le montant de la pénalité collective acceptable et nous montrons comment une politique de pénalités collectives peut inciter à une action collective pour récompenser un agent qui fait une auto-déclaration de son accident. Le mécanisme que nous proposons fonctionne comme une assurance mutuelle afin de récompenser un agent qui auto-déclare un accident. Nous évaluons le bien-être social sous l'action collective par rapport à un statu quo avec pénalités individuelles, et nous proposons des conditions qui entraînent une amélioration de bien-être. Néanmoins, les choix optimaux d'effort de prévention nécessitent soit une pénalité collective sans contrainte, soit un code d'honneur.

Journal of Public Economics, 2014

A central assumption in economics is that people misreport their private information if this is to their material benefit. Several recent models depart from this assumption and posit that some people do not lie or at least do not lie maximally. These models invoke many different underlying motives including intrinsic lying costs, altruism, efficiency concerns, or conditional cooperation. To provide an empiricallyvalidated microfoundation for these models, it is crucial to understand the relevance of the different potential motives. We measure the extent of lying costs among a representative sample of the German population by calling them at home. In our setup, participants have a clear monetary incentive to misreport, misreporting cannot be detected, reputational concerns are negligible and altruism, efficiency concerns or conditional cooperation cannot play a role. Yet, we find that aggregate reporting behavior is close to the expected truthful distribution suggesting that lying costs are large and widespread. Further lab experiments show that this result is not driven by the mode of communication.