Encouraging compliance: bonuses versus fines in inspection games

In this article we examine the effectiveness of bonuses and fines in an "inspection game," where costly inspection allows an authority to detect whether or not an individual complies with some standard of behavior. Standard game theoretic analysis predicts that in the inspection game non-compliant behavior is deterred by fines targeted at non-compliant individuals, but encouraged by bonuses awarded to compliant individuals. In an experiment we find that fines are effective in deterring non-compliance. However, in agreement with recent behavioral theories, we find that the effect of bonuses on compliance is much weaker than predicted. (JEL C72, C92, K42).

[1]  J. Tirole,et al.  Intrinsic and Extrinsic Motivation , 2003 .

[2]  Danila Serra.  Combining Top-Down and Bottom-Up Accountability: Evidence from a Bribery Experiment , 2010 .

[3]  I. Ehrlich.  Crime, Punishment, and the Market for Offenses , 1996 .

[4]  David G. Rand,et al.  Positive Interactions Promote Public Cooperation , 2009, Science.

[5]  Ben Greiner,et al.  An Online Recruitment System for Economic Experiments , 2004 .

[6]  H. Rauhut.  Higher Punishment, Less Control? , 2009 .

[7]  D. Stahl,et al.  On Players' Models of Other Players: Theory and Experimental Evidence , 1995 .

[8]  Colin Camerer,et al.  A Correction and Re-Examination of 'Stationary Concepts for Experimental 2x2 Games' , 2010 .

[9]  Martin Bell,et al.  Harvest trails in Australia: Patterns of seasonal migration in the fruit and vegetable industry , 2007 .

[10]  Charles A. Holt,et al.  Ten Little Treasures of Game Theory and Ten Intuitive Contradictions , 2001 .

[11]  K. Abbink,et al.  Laboratory experiments on corruption , 2006 .

[12]  J. Ochs.  Games with Unique, Mixed Strategy Equilibria: An Experimental Study , 1995 .

[13]  Ananish Chaudhuri,et al.  Propensities to engage in and punish corrupt behavior: Experimental evidence from Australia, India, Indonesia and Singapore , 2009 .

[14]  P. Ordeshook,et al.  Crime and Punishment: Are One-Shot, Two-Person Games Enough? , 1990, American Political Science Review.

[15]  Luigi Mittone,et al.  What Goes Around Comes Around? Experimental Evidence of the Effect of Rewards on Tax Compliance , 2011 .

[16]  Christina Strassmair,et al.  An experimental test of the deterrence hypothesis , 2012 .

[17]  George J. Stigler,et al.  The Optimum Enforcement of Laws , 1970, Journal of Political Economy.

[18]  Robert Shupp,et al.  The Effect of Rewards and Sanctions in Provision of Public Goods , 2006 .

[19]  R. Selten,et al.  Stationary Concepts for Experimental 2x2 Games , 2008 .

[20]  Calvin Blackwell,et al.  A Meta-Analysis of Tax Compliance Experiments , 2007 .

[21]  S. Cameron.  The Economics of Crime Deterrence: A Survey of Theory and Evidence , 1988 .

[22]  A. Ziegelmeyer,et al.  Laboratory Bilateral Gift Exchange: The Impact of Loss Aversion , 2006 .

[23]  Ernst Fehr,et al.  Detrimental effects of sanctions on human altruism , 2003, Nature.

[24]  K. Abbink,et al.  The Moonlighting Game An Experimental Study On Reciprocity And Retribution , 2000 .

[25]  Klaus M. Schmidt,et al.  Fairness and contract design , 2007 .

[26]  James M. Walker,et al.  Rewards and Sanctions and the Provision of Public Goods in One-Shot Settings , 2004 .

[27]  Jacob K. Goeree,et al.  Risk averse behavior in generalized matching pennies games , 2003, Games Econ. Behav..

[28]  A. Sadrieh,et al.  Fair wages when employers face the risk of losing money , 2012 .

[29]  Martin Sefton,et al.  Promoting cooperation: the distribution of reward and punishment power , 2012 .

[30]  Bernd Irlenbusch,et al.  Editorial Addresses , 1999 .

[31]  George Tsebelis,et al.  The Abuse of Probability in Political Analysis: The Robinson Crusoe Fallacy , 1989, American Political Science Review.

[32]  Laura K. Gee,et al.  Gun for Hire: Does Delegated Enforcement Crowd Out Peer Punishment in Giving to Public Goods? , 2011 .

[33]  I. Ehrlich,et al.  Market Insurance, Self-Insurance, and Self-Protection , 1972, Journal of Political Economy.

[34]  Laura K. Gee,et al.  Gun for hire: Delegated enforcement and peer punishment in public goods provision , 2012 .

[35]  E. Fehr,et al.  A Simple Mechanism for the Efficient Provision of Public Goods - Experimental Evidence , 2000 .

[36]  Junmin Wan.  The Incentive to Declare Taxes and Tax Revenue: The Lottery Receipt Experiment in China , 2010 .

[37]  A. Rustichini,et al.  A Fine is a Price , 2000, The Journal of Legal Studies.

[38]  R. Nagel.  Unraveling in Guessing Games: An Experimental Study , 1995 .

[39]  Laura K. Gee,et al.  The Hired Gun Mechanism , 2011 .

[40]  Bernhard von Stengel,et al.  Chapter 51 Inspection games , 2002 .

[41]  T. Offerman.  Hurting hurts more than helping helps , 2002 .

[42]  Cécile Bazart,et al.  Fighting Income Tax Evasion with Positive Rewards , 2011 .

[43]  Colin Camerer,et al.  Stationary Concepts for Experimental 2 X 2 Games: Comment , 2011 .

[44]  Theo Offerman,et al.  Discretionary Sanctions and Rewards in the Repeated Inspection Game , 2016, Manag. Sci..

[45]  Luciano Andreozzi.  Rewarding Policemen Increases Crime. Another Surprising Result from the Inspection Game , 2004 .

[46]  Ernst Fehr,et al.  Adding a stick to the carrot? The interaction of bonuses and fines , 2007 .

[47]  Matthias Sutter,et al.  Choosing the Carrot or the Stick? Endogenous Institutional Choice in Social Dilemma Situations , 2010 .

[48]  J. Tirole,et al.  Incentives and Prosocial Behavior , 2004 .

[49]  David L. Dickinson,et al.  The Carrot vs. the Stick in Work Team Motivation , 2001 .

[50]  A. Ortmann,et al.  The Robustness of Laboratory Gift Exchange: A Reconsideration ¤ , 2002 .

[51]  R. Freeman.  Crime and Unemployment , 1921, The Hospital.

[52]  P. Glimcher,et al.  Activity in Posterior Parietal Cortex Is Correlated with the Relative Subjective Desirability of Action , 2004, Neuron.

[53]  Samuel Bowles,et al.  Economic incentives and social preferences: substitutes or complements? , 2012 .

[54]  Colin Camerer,et al.  A Cognitive Hierarchy Model of Games , 2004 .

[55]  Sebastian J. Goerg,et al.  Stationary Concepts for Experimental 2 X 2 Games: Reply , 2011 .

[56]  R. Zeckhauser,et al.  More Order with Less Law: On Contract Enforcement, Trust, and Crowding , 2001, American Political Science Review.

[57]  B. Rockenbach,et al.  The Competitive Advantage of Sanctioning Institutions , 2006, Science.

[58]  William T. Harbaugh,et al.  The Carrot or the Stick: Rewards, Punishments and Cooperation , 2002 .

[59]  M. Rabin,et al.  Understanding Social Preference with Simple Tests , 2001 .

[60]  Gary W. Cox,et al.  A note on crime and punishment , 1994 .

[61]  B. Rockenbach,et al.  Motivating teammates: The leader's choice between positive and negative incentives , 2009 .

[62]  Paul Glimcher,et al.  Physiological utility theory and the neuroeconomics of choice , 2005, Games Econ. Behav..