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Deterrence Through Word of Mouth

  • Johannes Rincke

    ()

    (University of Munich, Department of Economics, Seminar for Economic Policy)

  • Christian Traxler

    ()

    (Max Planck Institute for Research on Collective Goods, Bonn)

The deterrent effect of law enforcement rests on the link between the actual and the perceived detection risk. We study the role of word of mouth for this linkage. Our approach makes use of micro data on compliance with TV license fees allowing us to distinguish between households who have been subject to enforcement and those who have not. Exploiting local variation in field inspectors' efforts induced by snowfall, we find a striking response of households to increased enforcement in their vicinity, with compliance rising significantly among those who had no interaction with inspectors. As we can exclude other channels of information transmission, our finding establishes a substantial deterrent effect mediated by word of mouth.

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Paper provided by Max Planck Institute for Research on Collective Goods in its series Working Paper Series of the Max Planck Institute for Research on Collective Goods with number 2009_04.

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Date of creation: Jan 2009
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Handle: RePEc:mpg:wpaper:2009_04
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