The Impact of Fine Size and Uncertainty on Punishment and Deterrence: Theory and Evidence from the Laboratory

31 Pages Posted: 12 Oct 2015

See all articles by Eberhard Feess

Eberhard Feess

Frankfurt School of Finance & Management gemeinnützige GmbH

Hannah Schildberg-Hörisch

Heinrich-Heine-Universität Düsseldorf; IZA Institute of Labor Economics

Markus Schramm

RWTH Aachen University

Ansgar Wohlschlegel

Portsmouth Business School

Abstract

We develop a theoretical model to identify and compare partial and equilibrium effects of uncertainty and the magnitude of fines on punishment and deterrence. Partial effects are effects on potential violators' and punishers' decisions when the other side's behavior is exogenously given. Equilibrium effects account for the interdependency of these decisions. This interdependency is important since, in the case of legal uncertainty, higher fines may reduce the willingness to punish, which in turn reduces the deterrence effect of high fines. Using a laboratory experiment, we identify these effects empirically by means of a strategy-method design in which potential violators can condition their behavior on the behavior of potential punishers and vice versa. All our experimental findings on both partial and equilibrium effects are in line with the hypotheses derived from the theory.

Keywords: deterrence, punishment, legal uncertainty, fines, laboratory experiment, partial and equilibrium effects

JEL Classification: K14, K42, C91, D64

Suggested Citation

Feess, Eberhard and Schildberg-Hörisch, Hannah and Schramm, Markus and Wohlschlegel, Ansgar, The Impact of Fine Size and Uncertainty on Punishment and Deterrence: Theory and Evidence from the Laboratory. IZA Discussion Paper No. 9388, Available at SSRN: https://ssrn.com/abstract=2672174

Eberhard Feess (Contact Author)

Frankfurt School of Finance & Management gemeinnützige GmbH ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

Hannah Schildberg-Hörisch

Heinrich-Heine-Universität Düsseldorf ( email )

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Markus Schramm

RWTH Aachen University ( email )

Templergraben 55
52056 Aachen, 52056
Germany

Ansgar Wohlschlegel

Portsmouth Business School ( email )

Portsmouth, PO1 3DE
United Kingdom

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