Fines versus Damages: Experimental Evidence on Care Investments

Abstract

This paper studies the differential effects of fines and damages on people’s investment in accident prevention. We report results from a series of experiments in which the level of monetary transfers after an accident is maintained across the two policy instruments, such that standard theory predicts the behavioral irrelevance of the instrument choice. However, we find that fines induce lower care investments than damages when fine revenue is used for prosocial ends. We discuss possible behavioral channels that may explain our findings.