Self-Reporting Schemes and Corporate Crime

Abstract

We study the design of self-reporting schemes for corporate crimes. We model a welfare-maximizing authority and a continuum of firms, where each firm has one employer and one employee. Employees decide whether to take an action beneficial to themselves but harmful to their employer and society. Employers design contracts that either prevent the harmful act or tolerate it. We investigate the optimal corporate and individual sanctions to impose on firms whose employees confess to having committed the harmful act. In an extension, we let employers monitor their employees, and investigate the optimal sanctions when employers report their own employees.