The Incentives Matrix: The Comparative Effectiveness of Rewards, Liabilities, Duties and Protections for Reporting Illegality

Abstract:     
Social enforcement is becoming a key feature of regulatory policy. Increasingly, statutes rely on individuals to report misconduct, yet the incentives they provide to encourage such enforcement vary significantly. Despite the clear policy benefits that flow from understanding the factors that facilitates social enforcement, i.e., the act of individual reporting of illegal behavior, the field remains largely understudied. Using a series of experimental surveys of a representative panel of over 2000 employees, this article compares the effect of different regulatory mechanisms - monetary rewards, protective rights, positive obligations, and liabilities - on individual motivation and behavior. By exploring the interplay between internal and external enforcement motivation, these experiments provide novel insights into the comparative advantages of legal mechanisms that incentivize compliance and social enforcement. At the policymaking level, the study offers important practical findings about the costs and benefits of different regulatory systems, including findings about inadvertent counterproductive effects of certain legal incentives. In particular, the findings indicate that in some cases offering monetary rewards to whistleblowers will lead to less, rather than more, reporting of illegality. At the more theoretical level, the findings contribute to several strands of inquiry, including motivational crowding-out effects, framing biases, the existence of a “holier-than-thou” effect, and gender differences among social enforcers. Together, these findings portray a psychological schema that offers invaluable guidance for policy and regulatory design.

Number of Pages in PDF File: 49

Keywords: Social enforcement, motivation, labor, enforcement motivation, bias, regulatory design, obligations

JEL Classification: K31, K00

working papers series