The Optimal Prosecution of Corporate Fraud: An Error Cost Analysis

52 Pages Posted: 9 Nov 2006

See all articles by Howard H. Chang

Howard H. Chang

Global Economics Group, LLC

David S. Evans

Global Economics Group; University College London

Date Written: November 1, 2006


Federal and state governments, sometimes armed with new legislation, have been increasingly aggressive in pursuing criminal charges against corporations and their executives. While corporate fraud can impose significant costs of the economy when left unchecked, the evidence shows that market mechanisms discipline much bad behavior while the criminalization of corporate behavior, coupled with bringing highly complex cases before juries that can neither understand the issues nor their instructions, imposes significant costs on the economy by deterring socially efficient risk-taking behavior by corporations and their executives. Criminal prosecution companies and their executives for corporate wrongdoings should be limited to clear cases of fraud and jury trials should be limited to the extent this is constitutionally permissible.

Keywords: Corporate Fraud, White Collar Crimes, Error Costs, Complexity

Suggested Citation

Chang, Howard H. and Evans, David S., The Optimal Prosecution of Corporate Fraud: An Error Cost Analysis (November 1, 2006). Available at SSRN: or

Howard H. Chang (Contact Author)

Global Economics Group, LLC ( email )

140 S. Dearborn, Suite 1000
Chicago, IL 60603
United States
312-533-4602 (Phone)


David S. Evans

Global Economics Group ( email )

111 Devonshire St.
Suite 900
Boston, MA 02108
United States

University College London ( email )

Gower St
London WC1E OEG, WC1E 6BT
United Kingdom

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