Cheap Talk About the Detection Probability

Abstract

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Optimal law enforcement with sophisticated and naïve offenders

“…In our framework, the authority can credibly reveal its detection effort. Conversely, Baumann and Friehe (2013) consider a cheap-talk game and show that credible information transmission is only possible under certain conditions on the levels of harm, sanctions, and the social costs of fines. As in our model, hiding the information may be optimal for the authority, but offenders always benefit from revelation as they can adjust their decisions accordingly.…”

“…As in our model, hiding the information may be optimal for the authority, but offenders always benefit from revelation as they can adjust their decisions accordingly. By contrast, naïve offenders may either benefit or suffer in our model when the authority reveals its effort: On the one hand, and similar to Baumann and Friehe (2013), they can adjust their behavior accurately to the actual probability of apprehension. On the other hand, the probability of apprehension is always higher with revelation.…”