On Esteem-Based Incentives

29 Pages Posted: 21 Nov 2019

See all articles by Ali Mazyaki

Ali Mazyaki

Department of Economics; Allameh Tabataba'i University; Department of Economics; Institute for Management and Planning Studies

Joel J. van der Weele

University of Amsterdam - Center for Experimental Economics and political Decision making (CREED); Tinbergen Institute; Center for Financial Studies (CFS)

Multiple version iconThere are 2 versions of this paper

Date Written: November 21, 2019

Abstract

The rise of the internet, increased connectivity and higher availability of personal data increases the relevance of incentives based on reputation and the allocation of esteem. However, their use is controversial: critics argue that shaming can lead to a loss of control over the size of the sanction and to mob justice. We use the signaling model of social behavior by Benabou and Tirole (2011) to explore the effect of esteem-based incentives and their interaction with traditional fines. We show that the use of esteem and stigma can indeed lead to a loss of control by generating multiple equilibria, some of which feature high levels of compliance and high levels of stigma. Moreover, the deterrent effect of monetary and esteem incentives is interdependent. If both types of incentives are costly to implement, esteem incentives should optimally be used relatively more for rare behaviors and in societies that have more heterogenous values.

Keywords: legal sanctions, signaling, incentives, reputation

JEL Classification: D02, H41, K42

Suggested Citation

Mazyaki, Ali and van der Weele, Joel J., On Esteem-Based Incentives (November 21, 2019). Amsterdam Law School Research Paper No. 2019-26; Amsterdam Center for Law & Economics Working Paper No. 2019-03. Available at SSRN: https://ssrn.com/abstract=3491206 or http://dx.doi.org/10.2139/ssrn.3491206

Ali Mazyaki

Department of Economics; Allameh Tabataba'i University ( email )

Shahid Beheshti,
Tehran
Iran

HOME PAGE: http://en.atu.ac.ir/

Department of Economics; Institute for Management and Planning Studies ( email )

No. 6, Jamal Abad, Niavaran Square
Tehran, Tehran
Iran

Joel J. Van der Weele (Contact Author)

University of Amsterdam - Center for Experimental Economics and political Decision making (CREED) ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands

HOME PAGE: http://https://sites.google.com/site/joelvdweele/

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Center for Financial Studies (CFS) ( email )

Gr├╝neburgplatz 1
Frankfurt am Main, 60323
Germany

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