The Impact of Fine Size and Uncertainty on Punishment and Deterrence: Evidence from the Laboratory

Abstract

Based on a simple theoretical model, we use a laboratory experiment to test the impacts of uncertainty, the magnitude of fines and aversion against making type-I and type-II errors on legal decision making. Measuring uncertainty as the noise of a signal on the defendant's guilt observed by legal decision makers, we observe that a supposed wrongdoer is less likely to be punished if fines and uncertainty are high. We find that the punishment frequency decreases considerably in fines and the signal's noise. Furthermore, judges care far more about type-I errors. Violators have social preferences, that is, they steal far less often than predicted by a model with payoff maximization. A disaggregated analysis reveals a large heterogeneity among participants who can be clustered in several different groups.

Keywords: Deterrence, fine size, type-I and type-II error, experiment

JEL Classification: C91, D03, K14