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On the Interaction between Legal and Reputational Sanctions

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  • Edward M. Iacobucci

Abstract

This article shows that reputational sanctions are not, as the literature implicitly assumes, independent of legal penalties. Rather, observers will assess a wrongdoer's type in light of conduct and the expected legal sanctions for that conduct. For example, if a person commits a wrong even in the face of onerous legal penalties, observers will tend to draw a more negative inference about the wrongdoer's propensity for wrongdoing than if legal penalties were light. On the other hand, onerous legal penalties may deter wrongdoing even for actors with a relatively high propensity for wrongdoing, which also affects reputational penalties. In addition, this article demonstrates that the literature's focus on deterrence in considering the relationship between formal and informal penalties is too narrow. It may be socially preferable in some circumstances to adjust legal penalties to allow actors to reveal their types than to adjust legal sanctions to promote optimal deterrence.

Suggested Citation

  • Edward M. Iacobucci, 2014. "On the Interaction between Legal and Reputational Sanctions," The Journal of Legal Studies, University of Chicago Press, vol. 43(1), pages 189-207.
  • Handle: RePEc:ucp:jlstud:doi:10.1086/675761
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    References listed on IDEAS

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    Cited by:

    1. Andrew F. Daughety & Reinganum F. Reinganum, 2014. "Settlement and Trial: Selected Analyses of the Bargaining Environment," Vanderbilt University Department of Economics Working Papers 14-00005, Vanderbilt University Department of Economics.
    2. Mungan, Murat C., 2016. "A generalized model for reputational sanctions and the (ir)relevance of the interactions between legal and reputational sanctions," International Review of Law and Economics, Elsevier, vol. 46(C), pages 86-92.
    3. Laure de Batz, 2018. "Financial Impact of Regulatory Sanctions on French Listed Companies," Working Papers IES 2018/10, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Apr 2018.
    4. Claude-Denys Fluet & Murat C. Mungan, 2017. "The Signal-Tuning Function of Liability Regimes," Cahiers de recherche 1707, Centre de recherche sur les risques, les enjeux économiques, et les politiques publiques.
    5. repec:eee:jeborg:v:137:y:2017:i:c:p:398-409 is not listed on IDEAS

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