Anti-Money Laundry regulation and Crime: A two-period model of money-in-the-utility-function

F Fanta and Hasan Mohsin

MPRA Paper from University Library of Munich, Germany

Abstract: The paper presents a two period model with two types of money i.e. dirty and cleans (legal) money in utility function. Clean money is earned from working in legal sector and dirty from illegal sector. Our two-two period model reveals that an increase in labor wage in legal sector unambiguously decease the labor hours allocated for illegal sector by increasing the opportunity cost for illegal activities. However, the crime-reducing impact of anti-money laundry regulation and the probability of the agent to be caught require both parameters should be above some threshold. This finding is extension to the existing literature. This threshold is a function of the marginal rate of substitution of ‘dirty’ money for consumption and the responsiveness of illegal income to the policy parameter. Higher threshold implies the need for tougher anti-money laundry regime. Therefore, the marginal rate of substitution between ‘dirty’ money and consumption, and the elasticity of illegal income to the policy parameter are the key in the formulation of anti money laundering policy.

Keywords: Money laundry; crime; money in utility function; money (search for similar items in EconPapers)
JEL-codes: C61 E26 (search for similar items in EconPapers)
Date: 2010-08
New Economics Papers: this item is included in nep-dge
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