Detection and Deterrence: A Microtheoretic Approach

Abstract

For over three decades, research on crime and corruption has been of special interest among social scientists. The present paper seeks to examine the decision-making behaviour of an illegal firm in terms of a simple micro theoretic exercise. We set up simple models of a profit maximizing illegal industrial firm and derive conditions under which illegalisation of work and production occurs, taking into consideration the fact that the probability of being detected of unlawful activity is a variable and being dependent on the scale of activity, measured in terms of output or employment. Here, we try to explore the cases where the firm is detected at different phases of its production process and also examine the impact of deterrence, if any, on the scale of illegal activity.