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A Fine is a Price

Uri Gneezy and Aldo Rustichini
The Journal of Legal Studies
Vol. 29, No. 1 (January 2000), pp. 1-17
DOI: 10.1086/468061
Stable URL:
Page Count: 18
Subjects: Law Business Economics
Find more content in these subjects: Law Business Economics
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A Fine is a Price
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Abstract The deterrence hypothesis predicts that the introduction of a penalty that leaves everything else unchanged will reduce the occurrence of the behavior subject to the fine. We present the result of a field study in a group of day‐care centers that contradicts this prediction. Parents used to arrive late to collect their children, forcing a teacher to stay after closing time. We introduced a monetary fine for late‐coming parents. As a result, the number of late‐coming parents increased significantly. After the fine was removed no reduction occurred. We argue that penalties are usually introduced into an incomplete contract, social or private. They may change the information that agents have, and therefore the effect on behavior may be opposite of that expected. If this is true, the deterrence hypothesis loses its predictive strength, since the clause “everything else is left unchanged” might be hard to satisfy.