19 April 2008

Wanted: Cartels - reward £100,000 (maybe)

The OFT has recently announced that it is prepared to offer financial rewards of up to £100,000 (in exceptional circumstances) for information about cartel activity.

The sceme is innovative. In the literature I think some had suggested paying the firms, but this scheme is more clever because it pays individuals. Two problems strike me in reading the OFT announcement.

1) The award is entirely at the discretion of the OFT - there may be no investigation if the OFT decides it is not a priority case (no investigation, no reward); and the level of the award is up to them. From an economic analysis of incentives the certainty of a good reward is what gets people interested in taking a risk, so perhaps the OFT is too stingy.
2) The intersection between leniency policy and this 'bounty' scheme. The OFT says that an employee who is involved in the cartel will not (normally) get a bounty but should apply for leniency. But then this is qualified further by suggesting that employees with peripheral involvement with a cartel may get a bounty anyway. Given that leniency works well, do we really want to mess with it?

There is obviously a third risk: revenge. The name Stanley Adams comes to mind, see here for more detail. And there is a good book too: S. Adams Roche v Adams (Jonathan Cape, 1984) which was then made into a film, A Song for Europe, starring David Suchet.

One wonders whether an employee's best interests are to report the cartel to his manager, so that he helps the company deal with the cartel in the best way possible (e.g. apply for leniency etc.) The rewards of such loyalty may be worth more than the uncertain bounty coupled with the risks inherent in calling the OFT.


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