Optimal Leniency and the Organization Design of Group Crime

We study a simple law-enforcement model where the organizational structure of a criminal group is endogenous and determined jointly with the amnesty granted to whistleblowers. We allow criminals to choose between a horizontal (partnership) and a vertical (hierarchical) organization structure, and we study how this choice affects the optimal leniency granted by a benevolent Legislator whose aim is to minimize crime. We show that the optimal amnesty with an endogenous organizational choice is less lenient than that granted when the policy targets vertical organizations only. In the equilibrium, partnerships coexist with vertical organizations.