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

49 Pages Posted: 9 Jun 2009 Last revised: 8 Apr 2013

Yuval Feldman

Bar-Ilan University - Faculty of Law

Orly Lobel

University of San Diego School of Law

Date Written: June 7, 2009

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.

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

JEL Classification: K31, K00

Suggested Citation

Feldman, Yuval and Lobel, Orly, The Incentives Matrix: The Comparative Effectiveness of Rewards, Liabilities, Duties and Protections for Reporting Illegality (June 7, 2009). Texas Law Review, Vol. 87, May 2010; San Diego Legal Studies Paper No. 09-013. Available at SSRN: https://ssrn.com/abstract=1415663 or http://dx.doi.org/10.2139/ssrn.1415663

Yuval Feldman (Contact Author)

Bar-Ilan University - Faculty of Law ( email )

Faculty of Law
Ramat Gan, 52900
Israel

Orly Lobel

University of San Diego School of Law ( email )

5998 Alcala Park
San Diego, CA 92110-2492
United States

HOME PAGE: http://home.sandiego.edu/%7Elobel/

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