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The impact of fine size and uncertainty on punishment and deterrence: Theory and evidence from the laboratory

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  • Feess, Eberhard
  • Schildberg-Hörisch, Hannah
  • Schramm, Markus
  • Wohlschlegel, Ansgar

Abstract

Increasing punishment is typically considered first choice to boost deterrence of unwarranted behavior such as false financial statements, asset misappropriation, stealing, or corruption. However, if there is uncertainty on a potential violator’s guilt, judges’ and juries’ willingness to impose punishment may decrease in its magnitude. Thus, increasing the magnitude of punishment may backfire, when the reduced punishment probability is anticipated by potential violators. Based on a theoretical model, our paper is the first to analyze the interdependency of violation and punishment behavior in a laboratory experiment, and to contrast it to the standard partial equilibrium perspective on deterrence that considers the punishment probability to be independent of the fine size. Varying both the magnitude of fines and the degree of uncertainty shows that, in case of legal uncertainty, the deterrent effect of higher fines is far less pronounced than if the punishment probability was exogenous.

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  • Feess, Eberhard & Schildberg-Hörisch, Hannah & Schramm, Markus & Wohlschlegel, Ansgar, 2018. "The impact of fine size and uncertainty on punishment and deterrence: Theory and evidence from the laboratory," Journal of Economic Behavior & Organization, Elsevier, vol. 149(C), pages 58-73.
    • Handle: RePEc:eee:jeborg:v:149:y:2018:i:c:p:58-73
    DOI: 10.1016/j.jebo.2018.02.021
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    Cited by:

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    2. Pieter T. M. Desmet & Franziska Weber, 2022. "Infringers’ willingness to pay compensation versus fines," European Journal of Law and Economics, Springer, vol. 53(1), pages 63-80, February.
    3. Carol Luengo & Marcelo Caffera & Carlos Chávez, 2020. "Uncertain penalties and compliance: experimental evidence," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 22(2), pages 197-216, April.
    4. Eugen Dimant & Tobias Gesche, 2021. "Nudging Enforcers: How Norm Perceptions and Motives for Lying Shape Sanctions," CESifo Working Paper Series 9385, CESifo.
    5. Abatemarco, Antonio & Cascavilla, Alessandro & Dell'Anno, Roberto & Morone, Andrea, 2023. "Maximal Fines and Corruption: an Experimental Study on Illegal Waste Disposal," CELPE Discussion Papers 166, CELPE - CEnter for Labor and Political Economics, University of Salerno, Italy.
    6. Jeffrey Wagner, 2021. "Optimal deterrence under misperception of the probability of apprehension and the magnitude of sanctions," Economics Bulletin, AccessEcon, vol. 41(3), pages 2080-2088.
    7. Feess, Eberhard & Kerzenmacher, Florian & Muehlheusser, Gerd, 2023. "Morally questionable decisions by groups: Guilt sharing and its underlying motives," Games and Economic Behavior, Elsevier, vol. 140(C), pages 380-400.
    8. Lando, Henrik & Mungan, Murat C., 2018. "The effect of type-1 error on deterrence," International Review of Law and Economics, Elsevier, vol. 53(C), pages 1-8.
    9. Salmon, Timothy C. & Shniderman, Adam, 2019. "Ambiguity in criminal punishment," Journal of Economic Behavior & Organization, Elsevier, vol. 163(C), pages 361-376.
    10. Giulia Mugellini & Sara Della Bella & Marco Colagrossi & Giang Ly Isenring & Martin Killias, 2021. "Public sector reforms and their impact on the level of corruption: A systematic review," Campbell Systematic Reviews, John Wiley & Sons, vol. 17(2), June.
    11. Baumann, Florian & Benndorf, Volker & Friese, Maria, 2019. "Loss-induced emotions and criminal behavior: An experimental analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 159(C), pages 134-145.
    12. Roee Sarel, 2022. "Crime and punishment in times of pandemics," European Journal of Law and Economics, Springer, vol. 54(2), pages 155-186, October.
    13. Matteo Migheli & Margherita Saraceno, 2023. "On the propensity to settle or litigate in laboratory disputes," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 40(2), pages 615-642, July.

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    More about this item

    Keywords

    Deterrence; Punishment; Uncertainty; Blackstone ratio; Partial and equilibrium effects; Laboratory experiment;
    All these keywords.

    JEL classification:

    • K14 - Law and Economics - - Basic Areas of Law - - - Criminal Law
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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