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A Fine is a Price

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  • Gneezy, Uri
  • Rustichini, Aldo

Abstract

The deterrence hypothesis predicts that the introduction of a penalty that leaves everything else unchanged will reduce the occurrence of the behavior subject to the fine. We present the result of a field study in a group of day-care centers that contradicts this prediction. Parents used to arrive late to collect their children, forcing a teacher to stay after closing time. We introduced a monetary fine for late-coming parents. As a result, the number of late-coming parents increased significantly. After the fine was removed no reduction occurred. We argue that penalties are usually introduced into an incomplete contract, social or private. They may change the information that agents have, and therefore the effect on behavior may be opposite of that expected. If this is true, the deterrence hypothesis loses its predictive strength, since the clause "everything else is left unchanged" might be hard to satisfy. Copyright 2000 by the University of Chicago.

Suggested Citation

  • Gneezy, Uri & Rustichini, Aldo, 2000. "A Fine is a Price," The Journal of Legal Studies, University of Chicago Press, vol. 29(1), pages 1-17, January.
  • Handle: RePEc:ucp:jlstud:v:29:y:2000:i:1:p:1-17
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    File URL: http://dx.doi.org/10.1086/468061
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    1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
    2. Kathryn E. Spier, 1994. "Pretrial Bargaining and the Design of Fee-Shifting Rules," RAND Journal of Economics, The RAND Corporation, pages 197-214.
    3. Chung, Tai-Yeong, 1996. "Settlement of Litigation under Rule 68: An Economic Analysis," The Journal of Legal Studies, University of Chicago Press, vol. 25(1), pages 261-286, January.
    4. Jennifer F. Reinganum & Louise L. Wilde, 1986. "Settlement, Litigation, and the Allocation of Litigation Costs," RAND Journal of Economics, The RAND Corporation, pages 557-566.
    5. Lucian Arye Bebchuk, 1984. "Litigation and Settlement under Imperfect Information," RAND Journal of Economics, The RAND Corporation, pages 404-415.
    6. Anderson, David A, 1994. "Improving Settlement Devices: Rule 68 and Beyond," The Journal of Legal Studies, University of Chicago Press, vol. 23(1), pages 225-246, January.
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