Carrots vs. Sticks

This article draws a general picture of the differences between the metaphors of carrots and sticks. It discusses incentive effects (in principle, a $100 carrot creates the same incentives as a$100 stick, but there are exceptions); transaction costs (carrots are paid upon compliance, sticks upon violation, therefore sticks have lower transaction costs if the majority complies); risks (probabilistic carrots create risks for compliers, probabilistic sticks for violators); wealth and budget constraints (the maximum carrot depends on the principal's wealth, the maximum stick on the agent's wealth, but sticks can have a multiplication effect); distributive effects (carrots may overcompensate, sticks may undercompensate; individualizing sanctions changes the distributive effect of carrots but not of sticks); activity level effects caused by these distributive effects; the principal's incentives to behave opportunistically; and the agent's incentives to self-report. The article also discusses special types (precompensated, annullable, combined, intra-group financed, reversible, strict liability carrots and sticks) and two extensions (political risks, behavioural effects)

How Institutions Shape Morality

We present the results of a randomized control trial on the effect of the introduction of formalized property rights on individuals' moral judgments and, in particular, on utilitarian morality. We show that institutions shape morality: being exposed to private property institutions makes individuals more utilitarian when confronted with moral dilemmas. Our results shed light on a possible institutional determinant of the variation of moral judgments across the globe and its geographical patterns, and have implications for the consequences of major institutional reforms-both intended, such as land-titling programs, and unintended, such as those following from recent historical events-on moral attitudes. We discuss two possible channels stemming from the inherent features of property rights: the loosening of social ties and the commodification of rights (JEL codes: K11; O13; Z10; Z13)