This new paper by Bhattacharya and Marhall finds that people don't do it for the money:
Abstract: Using a sample of all top management who were indicted for illegal insider trading in the United States for trades during the period 1989-2002, we explore the economic rationality of this white-collar crime. If this crime is an economically rational activity in the sense of Becker (1968), where a crime is committed if its expected benefits exceed its expected costs, “poorer” top management should be doing the most illegal insider trading. This is because the “poor” have less to lose (present value of foregone future compensation if caught is lower for them.) We find in the data, however, that indictments are concentrated in the “richer” strata after we control for firm size, industry, firm growth opportunities, executive age, the opportunity to commit illegal insider trading, and the possibility that regulators target the “richer” strata. We thus rule out the economic motive for this white-collar crime, and leave open the possibility of other motives.This is how the authors start the paper:
On August 7, 2006, Martha Stewart, the CEO of Martha Stewart Living Omnimedia Inc. (MSO), settled her civil insider trading case by agreeing to pay $195,081. This included $45,673, the amount of losses she avoided from her insider trading in ImClone Systems Inc. in December 2001, plus $12,389 in interest, plus the maximum civil penalty of $137,019, which is three times the amount of losses avoided. This suggests that the benefit that Martha Stewart would have received from her alleged insider trading if she was not caught, $45,673, was a paltry 1.7% of her $2,704,403 legal compensation from (MSO) in 2001, and a miniscule 0.007% of her $650 million net worth in 2001. If we factor in the probability of being caught and the monetary penalties incurred after being caught (the civil penalty given above, the costs of jail time, and the drop in value of her stock holdings2), her percentage net expected benefit from insider trading was much lower, and probably even negative.
The paper concludes:
So, do they do it for the money? They may, but it does not seem to be the primary motive. Then why do they do it? Psychological motives (like hubris) or sociological motives (like company culture, or because others do it (see Cheng, 2009)) may lie behind the white-collar crime of insider trading. A deeper exploration of these motives is beyond the scope of this paper. We leave that for future research.
The classic paper the authors refer to is Becker's "Crime and Punishment" (1968).