Hard Labour in the Lab: Are Monetary and Non-monetary Sanctions Really Substitutable?

Abstract: The theory of optimal deterrence suggests the substitution of mon- etary sanctions over non-monetary sanctions whenever this is possible because non-monetary sanctions are more socially costly. This pre- scription is based on the assumption that monetary and non-monetary sanctions are perfect substitutes: there exists a monetary equivalent of a non-monetary sanction that, if used as a fine, produces the same level of deterrence. We test this assumption with an experiment. In our stealing game potential thieves face the possibility of punishment. Our non-monetary sanction treatments mimic hard labour: we require convicted individuals to carry out a tedious real effort task. In the monetary treatments sanctions are instead fines, which are based on individuals’ wtp to avoid the effort task to ensure comparability to the non-monetary treatment. A second manipulation of our experiment concerns the balance of errors in the adjudication procedure (convic- tions of innocents and acquittal of guilty individuals). We find that stealing is reduced most effectively by a sanction regime that combines non-monetary sanctions with a procedure that errs on the side of con- viction. Our data is consistent with the notion that both monetary punishment and pro-defendant sanction regimes are less effective in communicating moral condemnation of an act.