Research Handbook on the Economics of Criminal Law

Research Handbook on the Economics of Criminal Law

Research Handbooks in Law and Economics series

Edited by Alon Harel and Keith N. Hylton

Jeremy Bentham and Gary Becker established the tradition of analyzing criminal law in utilitarian and economic terms. This seminal book continues that tradition with specially commissioned, original papers that span the philosophical foundations of the use of economics in criminal law, both traditional economic perspectives and behavioral and experimental approaches to the discipline.

Chapter 7: Corporate Criminal Liability: Theory and Evidence

Jennifer Arlen

Subjects: economics and finance, law and economics, law - academic, criminal law and justice, law and economics

Extract

Jennifer Arlen* 1. INTRODUCTION Corporations are subject to a host of laws that criminalize acts that are potentially profitable for the firm but harm society. Some of these laws, such as those prohibiting securities and health care fraud, criminalize intentional wrongdoing. Others, such as many environmental regulations, use criminal law to encourage firms to invest in measures to prevent harms that otherwise would naturally occur as part of their operations. Almost all of these laws are enforced through a combination of individual and corporate liability imposed on people who commit the wrong. The central policy question facing enforcement authorities is how to structure individual and corporate civil and criminal sanctions to optimally deter such crimes. This chapter employs economic analysis to examine the optimal structure of individual and corporate criminal liability for corporate crimes.1 It shows that, in order to optimally deter corporate crime, the state generally needs to impose both individual and corporate criminal liability. It also shows that, for most important crimes, the optimal structure of corporate liability differs from classic optimal individual criminal liability for purely individual crimes, as expressed in Becker (1968).2 Optimal corporate liability also differs in structure from optimal corporate liability considered in the classic economic models of corporate vicarious liability (Kornhauser 1982; Sykes 1984; Polinsky and Shavell 1993). Pure individual crimes generally involve an individual seeking to benefit from imposing harm on a third party. The central goal of individual liability is to deter all crimes which impose social costs greater than...

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