CeDEx Brown Bag Seminar - Rafael Nunes Teixeira

Title: The Impact of Monetary Penalties on Prosocial Motivation: Unveiling Crowding-Out (in) Effects and the Role of Contextual Change

Abstract: "Monetary penalties are employed across various contexts and formats to deter undesirable behaviors, yielding complex and often contradictory consequences. In some cases, the introduction of penalties leads to a deterioration of the situation, known as crowding-out effects, while in others, individuals display a propensity to follow rules and respect penalties, potentially resulting in crowding-in effects. This article aims to contrast these opposing theories by exploring how monetary penalties influence prosocial behavior and by exemplifying how minor contextual changes lead to different outcomes. To do this, we perform an experiment using a modified dictator game, subjecting participants to two subtly distinct penalty conditions: a ''fine'' - imposed after the dictator takes money - and a ''fee'' - paid before taking money. Our findings reveal that penalties have heterogeneous impacts on participants. While some individuals take money more intensively when facing a penalty (crowding-out effect), others abstain from taking money, even when they take large amounts without the penalty (crowding-in effect). Moreover, at the aggregate level, the ''fine'' shows no significant impact on the amount taken, suggesting the penalty's ineffectiveness, however, the ''fee'' leads to a significant reduction, illustrating how minor changes lead to different conclusions. Notably, the ''fee'' also results in a greater reduction in instances where money is taken compared to the ''fine.'' Finally, our study demonstrates that monetary penalties trigger shifts in social norms. These shifts can partially explain the observed crowding-out (in) effects but cannot explain the differences between ''fine'' and ''fee.''