Carrots, Sticks, and the Multiplication Effect

25 Pages Posted: 2 Nov 2007 Last revised: 17 Sep 2016

See all articles by Giuseppe Dari‐Mattiacci

Giuseppe Dari‐Mattiacci

University of Amsterdam; Tinbergen Institute

Gerrit De Geest

Washington University in St. Louis - School of Law

Abstract

Although a punishment can be applied only once, the threat to punish can be repeated several times. This is possible because, when parties comply, the punishment is not applied and can thus be used to support a new threat. We refer to this feature of sticks as the "multiplication effect". The same is not possible with promises to reward, since carrots are used up every time a party complies; hence, at each round a new reward is needed. We show that the multiplication effect of sticks has pervasive consequences in economics and law, and provides a unified explanation for seemingly unrelated phenomena such as comparative negligence, legal aid, the dynamics of riots and revolutions, the use of property rules, the commons problem, and the most-favorednation clause in settlement negotiations.

Keywords: law enforcement, comparative negligence, divide-and-conquer, revolutions, legal aid

JEL Classification: K14, K42

Suggested Citation

Dari-Mattiacci, Giuseppe and De Geest, Gerrit, Carrots, Sticks, and the Multiplication Effect. Journal of Law, Economics and Organization, Vol. 26, No. 2, October 2010, Amsterdam Center for Law & Economics Working Paper No. 2007-08, Available at SSRN: https://ssrn.com/abstract=1026762 or http://dx.doi.org/10.2139/ssrn.1026762

Giuseppe Dari-Mattiacci (Contact Author)

University of Amsterdam ( email )

Postbus 15654
1001 ND
Amsterdam, Noord-Holland 1001 ND
Netherlands

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Gerrit De Geest

Washington University in St. Louis - School of Law ( email )

Campus Box 1120
St. Louis, MO 63130
United States
314-935-7839 (Phone)

HOME PAGE: http://www,degeest.wustl..edu

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