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Economics of Governance

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03.07.2018 | Original Paper

Private law enforcement with competing groups

verfasst von: Ken Yahagi

Erschienen in: Economics of Governance | Ausgabe 3/2018

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Abstract

This paper introduces groups that are in conflict against each other in law enforcement policy. These groups can have an effect on the process of law enforcement by making upfront investments, such as bribes. We also investigate consequences when a policy maker acts to maximize a bribe instead of social welfare. Thus, this paper presents an inclusive framework for incorporating private law enforcement, corruption and avoidance activities. This article shows that this competition can lead to moderate and more efficient law enforcement activities. This indicates that inefficient law enforcement by authority with harm reduction motivation can be avoided. Additionally, this paper shows that depending on the policy maker’s objection between rent-seeking motivation or social welfare maximizer, deterrence effects vary. This paper provides a clear mechanism that the rent-seeking motivated policy maker tends to set less severe enforcement policies than the social welfare level.

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It also has been discussed in the law and economics literature that the government’s objectives should not include the benefits of offenders e.g., Dau-Schmidt (1990). One of the main reasons that public enforcers consider the benefit to criminals is that there exists some political pressure from the collective entity advocating a weak law enforcement policy. In this respect, this paper provides a framework for analyzing why the government cares about benefits to criminals.

This is because compared to changing sanctions, controlling detection efforts is easier and takes less time. Moreover, because detection activities have costs, this tends to reflect their attitudes towards law enforcement policies.

For simplicity, each group acts as a unitary actor, since we do not consider the collective action problem.

We assume that the second-order condition must be satisfied.

This situation occurs when \(\partial n_2/\partial p \le 0\). We also assume that if detection activity is 0 (\(p=0\)), a change in the degree of sanction has no meaning. This is intuitive because law enforcement has an effect when these two functions work effectively.

These papers used this type of probability function for analyzing caps on campaign contributions, immigration quotas and trade policy.

Another type of probability function is the lottery contest success function, as originally proposed by Tullock (1980). The winning probability is determined in accordance with the ratio of each group’s investment; thus, in contrast to the all-pay auction model, uncertainties play important roles.

Moreover, in the literature, the source of distortions of law enforcement policies demands only that there are no detection activities. Thus, in contrast to the literature, this paper considers not only these extreme illegal gainers that demand no detection efforts but also moderate players that desire less severe crackdown strategies; we investigate a wide range of strategic law enforcement process.

In the previous literature, the lottery function that uncertain factors work is implicitly used.

This setting is similar to the corruption law enforcement literature; see, e.g., Bowles and Garoupa (1997), Polinsky and Shavell (2001) and Echazu and Garoupa (2010). These papers focus on direct interaction between law enforcers and offenders, while this paper’s setting offers new insight about how to control their incentive for bribing. Because of this, from the social welfare point of view, the target to control the source of distortion is two groups. Additionally, this paper’s motivation is oriented toward more sophisticated political and institutional connections among high-ranking figures.

For example, when Group 2 invests y satisfying \(d_2> y\), Group 1 spends \(x=y+e\) satisfying \(d_1>x\). In this situation, Group 2 has an incentive to choose \(y=0\) as the optimal strategy. However, since the reasoning is similar for Group 1, this cannot be a pure-strategy Nash equilibrium. Thus, there is no pure-strategy Nash equilibrium.

According to Konrad (2009), the unique equilibrium in these mixed strategies are described by groups’ uniform cumulative distribution functions, which describe the distribution of investments choices: \(F_1 (x)=x/d_2\) for \(x\in [0,d_2]\). Further, \(F_2 (y)=[1-d_2 /d_1]+y/d_1\) for \(y\in [0,d_2]\). Thus, these results can be obtained by taking expected values.

If we have \(d'_2<0\), or the direct effect is larger than indirect effect for Group 2, this result always holds.

Friehe and Miceli (2017) present a setup similar to our own, in that the law enforcement authority and an illegal gainer choose simultaneously. However, the main differences are that they do not consider the law enforcement authority as one lobbyist and use a different method to choose the detection activities.

Although imposing the sanction also imposes some cost, our implication is unchanged.

One application of this framework is to examine the relationship between the quality of democracy and organized crime in which citizens and figures of organized crime groups are active. According to Sung (2004), “higher perceptions of victimization by organized crime were reported in moderately democratic countries than in both authoritarian societies and advanced democracies.” This is because, in the process of democratization, organized crime groups, such as the Mafia, have opportunities to obtain payments through political connections. In this respect, our analysis supports his result that the rent seeker tends to pursue his own private gain at the expense of desired and efficient law enforcement. Lin (2007) finds that major crime tends to be more punished than minor crimes in more developed countries than in less developed countries.

This paper is similar to that of Echazu and Garoupa (2010), in that law enforcement authority takes two actions. Although the motivation in Echazu and Garoupa is to see how the distortion is generated by multi-task jobs of law enforcers, in this paper, the setup is such that there is no trade-off between lobbying efforts and actual detection activities, and the target to control behavior is mainly groups with greater concerns about law enforcement policies. That is, it is not true that there is an interaction between law enforcement authority and offenders.

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Titel: Private law enforcement with competing groups
verfasst von: Ken Yahagi
Publikationsdatum: 03.07.2018
Verlag: Springer Berlin Heidelberg
Erschienen in: Economics of Governance / Ausgabe 3/2018
Print ISSN: 1435-6104
Elektronische ISSN: 1435-8131
DOI: https://doi.org/10.1007/s10101-018-0210-7