Optimal law enforcement and criminal organization

In this paper, we study the organizational consequences of product illegality. Severe punishment reduces the dimension of a criminal network, but it might augment the effectiveness of its members. Smaller firms are easier to manage, and consequently fewer mistakes are committed, which in turn diminishes the likelihood of detection. Hence, a less severe enforcement of the law could be considered in order to achieve optimal deterrence. We also show that the allocation of sanctions between employer and employees is not unimportant as previous literature indicated.