Hybrid Incentives: Carrots, Sticks, or Carrots Which Become Sticks?

35 Pages Posted: 1 Jun 2017 Last revised: 21 Aug 2017

See all articles by Benjamin Shmueli

Benjamin Shmueli

Bar-Ilan University - Faculty of Law

Date Written: May 30, 2017

Abstract

Various incentives may be used in order to cause a person to desist from an activity that creates negative externalities. It is possible, naturally, to use a stick and to apply an economic sanction in order to incentivize them to desist from that activity. It is also possible to use a carrot, i.e., to grant them a financial prize if they desist from the activity. Each of these incentives has advantages and disadvantages. Literature and practice are familiar with various combinations of sticks and carrots. In most cases, the mechanism is “horizontal”, e.g. using carrots with respect to certain parts of the population, and sticks against other parts. The Article presents a novel, vertical, sequential mechanism, in the form of a “game” played in two consecutive stages that are connected to each other, that trap the person who perpetrated a negative action within the mechanism, with no possible way out. At the center of the first stage of the vertical mechanism stands a carrot – a reward or a positive incentive – which is combined with a certain social sanction (shaming). At the center of the second stage, which is activated only if the implementation of the first stage did not meet with success, stands a stick – a punishment or a negative incentive. The objective will be to incentivize a person to engage in fruitful negotiations to end the harmful activity at the pre-mechanism stage, for after the mechanism begins operating and as more time passes, he will only lose. For this purpose, an illustration will be offered of the negative social behavior of one-sided refusal to give or accept the Jewish divorce bill in the Jewish sector the world over, in a reality in which it is not possible under religious law to compel a refuser to give or accept that bill, namely, the intractable agunah problem. The mechanism will be built primarily on the basis of a few theories from the field of law and economics: reversible rewards, dual-chooser rules, and modular liability rules. The main argument will be that the use of a multi-part vertical incentives mechanism increases efficiency at minimal additional cost; it overcomes a moral problem of “rewarding the sinner” by giving him a carrot and combines in optimal fashion the advantages entailed by activating the sticks and the carrots, and at the same time – insofar as possible – nullifies most of the disadvantages of each of them.

It is possible to extrapolate from the specific to the general. From this aspect, the Article has several contributions to make. First, the example that will be discussed – that of refusal to divorce – is universal, and it is relevant anywhere in the world where there are Jews. Second, the Article has a contribution to make to legal and social sciences literature on the subject of incentives in general, and sticks and carrots in particular. Third, the Article will present a unique case of integration of a social sanction within a legal mechanism. Fourth, the Article might constitute a model for the possible dissolution of partnerships, not only in the family, but also in the dissolution of business partnerships when deciding on the disposal of an asset that cannot be divided, as well as of a bilateral monopoly where there is room for a governmental-regulatory solution rather than one deriving from private law. Fifth, the Article strengthens the connection between law and economics on the one hand and family law on the other – a connection that is considered to be less natural than that between law and economics and other branches of law.

Keywords: Incentives, Hybrid Incentives, Carrot Solutions, Stick Solutions, Combination of Carrots and Sticks, Law and Economics, Tort Law, Negative Externalities, Reversible Rewards, Modular Liability Rules, Dual-Chooser Rules, Law and Religion, Conflict of Laws, Courts, Women's Rights, Private Law, Divorce

JEL Classification: K100

Suggested Citation

Shmueli, Benjamin, Hybrid Incentives: Carrots, Sticks, or Carrots Which Become Sticks? (May 30, 2017). Available at SSRN: https://ssrn.com/abstract=2977408 or http://dx.doi.org/10.2139/ssrn.2977408

Benjamin Shmueli (Contact Author)

Bar-Ilan University - Faculty of Law ( email )

Faculty of Law
Ramat Gan, 5290002
Israel

HOME PAGE: http://www.law.biu.ac.il/en/node/455#tabs-tabset-5

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