White-collar crime and whistle-blowing: Theoretical and empirical analysis (Russia)

This dissertation presents theoretical and empirical analysis of private deterrence of white-collar crime through whistle-blowing. White-collar crime is different from common crimes: (1) White-collar offenders are more likely to occupy positions of power. They may cause great harm to the society and influence the public perception of the crime rate. (2) White-collar offenses are more obscure and easier to conceal. Thus, the probability of apprehension is lower and harm is greater than in case of common crimes.; The formal model expands upon the standard theory of optimal law enforcement by using the theoretical optimal level of punishment as a benchmark and by introducing the whistle-blower's loss function. Assuming the law enforcement budget rigidity, whistle-blowing reduces costs of detection and investigation and poses a threat to white-collar offenders by increasing costs of committing crimes. The offender is capable of discouraging whistle-blowing through retaliation and by distorting the information about crime incidence. The whistle-blower chooses the level of private effort by balancing the perceived gains from private deterrence against disutility arising both from putting forth private effort and from the risk of negative repercussions.; The theoretical results suggest the decisive role of the current level of fines. If the current fine is significantly below the optimum, private effort increases in the law enforcement budget, harm, and the perceived crime rate, while it decreases in the fine and retaliation. As the fine exceeds certain critical level the whistle-blower's behavior may revert.; The model is tested against the Russian data (1946--1961) on individual complaints about bureaucratic malfeasance sent to law enforcement authorities. The Soviet case meets all the formal requirements of which the most important are the relatively low probability and a low level of punishment.; The estimations confirm the theoretical predictions for low levels of fine. The empirical analysis reveals that the observed level of whistle-blowing is significantly influenced by awareness expenditures and supports the assumption of a downward biased perception of the crime rate. The behavior of the residuals of the model suggests a relationship between changes in the political-economic environment and the whistle-blowing activity.