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Received March 23, 2017; in revised form March 26, 2018; accepted April 8, 2018
Graduated response policies (e.g., three-strikes laws) are often adopted to deter repeated criminal activity. In 2009 France passed the Hadopi three-strikes law targeting digital piracy. We model the individual intertemporal decision to engage in illegal activity before and after receiving each strike and, contingent on this decision, the level of illegal content acquisition (piracy) within each stage. We find that monitoring efforts typically believed to deter criminal activity can have unintended results. For example, an increase in the probability of detection can increase piracy. An increase in the punishment is the only policy that unambiguously deters illegal activity.
Keywords: crime, criminal behavior, three-strikes law, graduated response, detection, deterrence, digital piracy
JEL classification code: D90, K14, K42, L82
(ProQuest: ... denotes formulae omitted.)
1Introduction
Digital piracy is a major concern for the music and movie industries, and a large body of empirical research indicates that digital piracy has been a significant cause of reduced sales in these industries.1 Most developed countries have responded to the increasing incidence of digital piracy by strengthening laws against copyright infringement (Klumpp, 2013) and threatening consumers with legal action in order to deter them from downloading or sharing content.2
In 2009 France undertook a novel policy referred to as the three-strikes law (more formally known as the Hadopi Law), under which individuals detected il· legally sharing digital content are given warnings after the first two offenses and face a fine upon a third offense. In 2013, a somewhat less credible antipiracy effort was implemented in the United States by five large Internet service providers in partnership with the movie and music industries.3
This paper focuses on how antipiracy interventions influence individual decisions to engage in illegal consumption of content. In particular, we consider the effectiveness of a graduated response policy in reducing digital piracy. A large literature initiated by Becker's (1968) seminal work has explored the economic incentive and behavioral effects of policies designed to deter criminal activity. However, this literature largely ignores the influence of time. Exceptions include Davis (1988) and Leung (1995), who demonstrate that in a dynamic setting an individual's discount rate is influenced by the rate of criminal activity and associated probability...