Certainty of Punishment versus Severity of Punishment- An Experimental Investigation

Compliance with laws and regulations depends on the expected penalty facing violators. The expected penalty depends on both the probability of punishment and the severity of the punishment if caught. A key question in the economics of crime literature is whether increasing the probability of punishment is a more effective deterrent than an equivalent increase in the severity of punishment. This paper uses laboratory experiments to investigate this issue, and finds that increasing the severity of punishment is a more effective deterrent than an equivalent increase in the probability of punishment. This result contrasts with the findings of the empirical crime literature.

Designing Self-Reporting Regimes to Encourage Truth Telling: An Experimental Study

We report results from an experiment that investigates truthfulness in self-reporting under different reporting regimes. The experiment involves a production task with self-reporting of accidents, with reporting compulsory for some participants, but only voluntary for others. We find that dishonesty is prevalent, but accident reporting is more frequent with compulsory reporting compared with voluntary. This suggests that lie aversion is a stronger force than the intrinsic motivation to voluntarily report, and that careful design of self-reporting regimes is necessary by enforcement agencies to achieve satisfactory compliance outcomes. Our results are relevant for several areas beyond regulatory compliance, including dishonesty in social security claims, insurance claims, workplace expense claims, income tax returns, and financial reporting.

The Causes of Order Effects in Contingent Valuation Surveys: An Experimental Investigation

CV researchers have found that the hypothetical values respondents place on a nested sequence of environmental goods are sensitive to the order in which the goods are presented. Typically, the smallest bundle of goods is valued more highly if presented first than if following more comprehensive bundles. Such effects appear even when each bundle is valued from an "exclusive" list, or as an alternative to any other, so that income and substitution effects are controlled. Order of presentation has also affected the degree to which values are sensitive to scope. We conduct lab experiments where participants are asked to value sequences of nested goods for actual purchase from an exclusive list using the incentive compatible BDM mechanism. We test whether order effects occur in valuation for a) induced value goods, b) actual private goods, and c) identical private goods that are to be donated to charities. We find significant order effects when the goods are valued for own use, but not when they are valued for donation.Order effects; exclusive list; warm glow; contingent valuation

Overconfidence in Forecasts of Own Performance: An Experimental Study

Overconfidence can have important economic consequences, but has received little direct testing within the discipline. We test for overconfidence in forecasts of own absolute or relative performance in two unfamiliar experimental tasks. Given their choice of effort at the tasks, participants have incentives to forecast accurately, and have opportunities for feedback, learning and revision. Forecast accuracy is evaluated at both the aggregate level, and at the individual level using realized outcomes. We find very limited evidence of overconfidence, with zero mean error or under-confidence more prevalent. Under-confidence is greatest in tasks with absolute rather than relative win criteria, often among subjects using greater or "smarter" effort.Overconfidence; forecast errors; self-assessment

Creating incentives for industry self-policing: an evaluation of the EPA’s audit policy

To encourage industry self policing, the EPA (Environmental Protection Agency) offers rewards, in the form of reduced penalties, to firms that voluntarily conduct compliance audits and report any discovered violations to the EPA. This paper evaluates the EPA's audit policy by comparing the social costs when self auditing occurs with the alternative of relying on agency inspections to uncover violations. Because of the need to maintain a credible deterrent, self policing reduces, but does not eliminate inspection costs. When inspections or audits are costly compared to the damage caused by violations, self auditing will not be socially beneficial

A Hedonic Price Analysis for the New Zealand Wine Industry: Preliminary Results

This paper presents preliminary results from a hedonic price analysis of premium wines in New Zealand over the vintages 1994 – 2003. Implicit prices are presented for a sensory quality rating, as well as wine variety and regional reputation. Results show that the price premium associated with Michael Cooper's five-star quality rating is highly significant and increasing in magnitude over the study period. Trends in regional and varietal preferences are also explored.Hedonic pricing, New Zealand wine, quality, Agribusiness, Agricultural and Food Policy, Environmental Economics and Policy, Food Consumption/Nutrition/Food Safety, Research Methods/ Statistical Methods, Resource /Energy Economics and Policy,

Bounded Rationality and Consumer Research: Lessons From a Study of Choices of Mobile Phone Service Contracts

This paper draws lessons about the allocation of resources to research aimed at studying the efficiency of consumer decision making in complex, fast-moving markets. These lessons emerged during research involving a large-sample survey of choices of mobile phone service plans by Australian consumers. In this kind of market, researchers will run into difficulties in collecting and evaluating data, and market conditions will not stand still while they address these problems. It is even possible that what seems suboptimal to researchers will sometimes actually be highly appropriate choice for consumers. The paper concludes by advocating the use of simpler methods to approximate the prevalence of decision-making inefficiency—such as collaborative work with owners of websites that try to assist consumers—as knowledge of optimal choices is not essential for understanding the sources of inefficiency or devising methods by which better choices might be made.

Multipart tariffs and bounded rationality: an experimental analysis of mobile phone plan choices

Multipart tariff structures add to the computational challenges in choosing mobile phone connection services. We study the quality of decision making in a laboratory environment where consumers only face a small set of mobile phone plan options but have to contend with different degrees of tariff complexity as well as uncertain usage. Our main finding is that simply eliminating the multipart tariff structure does not necessarily lead to better decisions. Rather it is multipart tariffs with included values in excess of monthly fees, thus entailing two-tier pricing structures with increasing marginal costs, which lead to the worst decisions. Knowledgeable participants, who understand mobile phone plan pricing, make significantly better choices

Risk taking and skewness seeking behavior in a demographically diverse population

International audienceWe study the interaction between risk-taking and skewness-seeking behavior among a demographically diverse sample of French adults using an experiment that elicits certainty equivalent over lotteries that vary the second and third moments orthogonally. We find that the most common behavior is risk avoidance and skewness seeking. On average, we find no interaction between the two, and a weakly significant interaction only in some segments of the population. That is, in most cases, skewness seeking is not affected by the variance of the lotteries involved, nor is risk taking affected by the skewness of the lotteries. We also find a significant positive correlation between risk-avoiding and skewness-seeking behavior. Older and female participants make more risk-avoiding and more skewness-seeking choices, while less educated people and those not in executive occupations are more skewness seeking. Estimated decision models show that utility curvature, likelihood sensitivity, and optimism can explain the observed behaviors

Selection, tournaments, and dishonesty

We conduct a real effort experiment in which performance is not monitored and participants are paid according to their reported performance. Participants are paid according to a piece rate and a winner-take-all tournament and then select between the two schemes before performing the task one more time. Competition increases dishonesty and lowers output when the payment scheme is exogenously determined. Participants with a higher propensity to be dishonest are more likely to select into competition. However after selection, we find no output difference between piece rate and tournament. This is attributable to a handful of honest individuals who select competition