Civil and criminal sanctions against blackmail: an economic analysis

Abstract

The rationale behind the legal prohibition of blackmail and its effects have worried lawyers, economists and philosophers. The paper tries to offer a new perspective on the issue by introducing a simple game-theoretic model of the blackmail interaction under three alternative legal regimes: blackmail as a legally enforceable contract, blackmail as a voidable contract, and criminal blackmail. We show that the first two are substantially equivalent, and are unable to prevent a successful blackmail equilibrium outcome. Making blackmail a crime can instead alter this result for some parameters of the model. We also explore the justification for criminalizing blackmail and find it, in line with previous Law and Economics literature on blackmail ( Ginsburg and Shechtman (1993), Coase (1988)), in the correction (albeit incomplete) of misaligned incentives to acquire information and the revelation and no revelation outcomes involved in the blackmail transaction. This justification could be undermined by the advantages of what seems to be a superior legal regime in terms of efficiency: no legal regulation of blackmail. This hands-off system can also destabilize, in a one-shot interaction, the successful blackmail outcome. In plausible dynamic interactions, however, it fails to do so and, in fact, its effects actually resemble those of blackmail as an enforceable contract. This result might explain why most legal systems stick to the criminalization of blackmail.