Governments around the globe are facing the most serious challenge since the World War II with the emergence of the COVID-19. Social distancing measures, ranging between a stay-at-home advice to a full lockdown, are currently the most prominent policy measures for slowing down the spread of the pandemic. Ideally, individuals should comply with these measures without requiring the force of law. However, for a whole array of reasons, a complete confinement is impossible without enforcement. Not least, the arrival of spring weather in many affected countries will boost violations of social distancing.
Public authorities have therefore begun enforcement by implementing fines – but with highly varying amounts. While the Senate of Berlin announced a fine between 10 to 100 euros for citizens who “leave their home without good reason”, other German authorities, e.g. in Hessia, use higher fines. In Italy, fines range between 400 to 3000 euros. The heterogeneity raises the question of the optimal size of fines. Here, economic experiments may provide valuable insights.
Economic theory usually presumes that individuals respond to monetary incentives, be they in form of a reward or a penalty. The introduction of fines should, then, deter economic agents from performing the undesired behavior, regardless of the fine’s size. Gneezy and Rustichini (2000a) famously test this deterrence hypothesis empirically, in the context of late-coming parents in day-care centers. They introduce a fine for late-coming parents and compare the behavior of parents under this treatment condition with a control group of parents who do not face the possibility of a fine. The result stands in stark contrast to the deterrence hypothesis: the fine leads to an increase in the number of parents coming late. The results and further discussions suggest that a fine may be perceived as a price. A sufficiently low price is affordable, hence people may be willing to pay it.
The finding is consistent with the crowding-out effect that is documented ubiquitously in the behavioral sciences. If a monetary reward/fine is sufficiently low, it may promote undesired behaviors by crowding out moral costs. In another study, Gneezy and Rustichini (2000b) provide evidence in favor of this effect in the context of donation behavior. The authors present different groups of donation solicitors with different reward levels for collecting donations. One group receives no reward irrespectively of how much they collect, one group receives 1% of the amount they collect, and one group receives 10%. The results show that in the 1% group, the collected amount drops significantly compared to the no-reward group. Again, this suggests that monetary rewards may be detrimental if they are perceived as small.
The results of these experiments suggest that small fines for violations of social distancing may, likewise, not serve their purpose but instead may generate adverse effects. This does not, however, suggest that larger fines always lead to higher compliance since too much enforcement may damage the voluntary compliance by undermining the trust relation. This argument echoes with the slippery slope argument of Kirchler et al. (2008) in the context of tax compliance behavior. These authors describe trust in and power of authorities as two dimensions that may lead to higher tax payments through voluntary or enforced compliance. Trust and power are also interrelated: boosting the power dimension (e.g., larger fines) may impair the trust dimension, which in return can lead to a decrease in tax payments. Wahl et al. (2010) report supporting evidence from their laboratory experiments.
How much to fine violations of the current confinement regulations is a complex question that requires the attention of scholars from multiple disciplines. Without knowing details, we may at least say that the optimal size of fines depends on the trade-off between intrinsic/extrinsic motivations and on the level of trust in governments. It may therefore well be that for each country/state/region, a different optimal size of fines applies. However, as the abovementioned studies highlight, setting fines at either of the two extremes (very low, very high) may prove to be counterproductive.
Muhammed Bulutay (TU Berlin)
Gneezy, U. and Rustichini, A. 2000a. A fine is a price, The Journal of Legal Studies, 29-1, pg. 1-17.
Gneezy, U. and Rustichini, A. 2000b. Pay enough or don’t pay at all, The Quarterly Journal of Economics, 115-3, pg. 791-810.
Kirchler, E., Hoelzl, E., and Wahl, I. 2008. Enforced versus voluntary tax compliance: The “slippery slope” framework, The Journal of Economic Psychology, 29, pg. 210-225.
Wahl, I., Kastlunger, B., and Kirchler, E. 2010. Trust in authorities and power to enforce tax compliance: An empirical analysis of the “Slippery Slope Framework. Law & Policy, 32-4, pg. 383-406.