Leniency, Tigers and Flies. Evidence from Chinese Anti-corruption.

Abstract: We map the evolution of the Chinese anti-corruption legislation and document a large stable fall in prosecuted cases after a reform that strengthened leniency and asymmetry of sanctions in 1997. This is consistent with either reduced corruption detection, or improved deterrence. To resolve the ambiguity and shed light on the question of whether leniency policy might help fighting corruption, we start with an empirical investigation into the case of China, to our knowledge the earliest attempt to use this type of tools. We also substantiate the thesis that while invoking one legal asymmetry may be a good idea, combining two of them is not, by setting up a game-theoretic model in which this is true. We use the model to derive a series of testable predictions to subsequently refine the empirical analysis. Results point to a lack of deterrence effect, plausibly linked to a different aim of the reform: a refocusing of effort from "flies" to "tigers".