Trust, Leniency, and Deterrencey

bigoni, maria;

This article presents results from a laboratory experiment studying the channels
through which different law enforcement strategies deter cartel formation. With
leniency policies offering immunity to the first reporting party, a high fine is the
main determinant of deterrence, having a strong effect even when the probability
of exogenous detection is zero. Deterrence appears to be mainly driven by
�distrust�; here, the fear of partners deviating and reporting. Absent leniency,
the probability of detection and the expected fine matter more, and low fines are
exploited to punish defections. The results appear relevant to several other
forms of crimes that share cartels� strategic features, including corruption and
financial fraud. (JEL C92, D03, K21, K42, L41.)