Social preferences and lying aversion in children

While previous research has shown that social preferences develop in childhood, we study whether this development is accompanied by reduced use of deception when lies would harm others, and increased use of deception to benefit others. In a sample of children aged between 7 and 14, we find strong aversion to lying at all ages. Lying is driven mainly by selfish motives and envy. Children with stronger social preferences are less prone to deception, even when lying would benefit others at no monetary cost. Older children lie less than younger children and use self-justification to lie.     

Harmful lie aversion and lie discovery in noisy expert advice games

This study tests whether individuals are reluctant to tell lies, or perhaps only “harmful lies”, in a previously untested environment: an expert sending a message to a decision maker whose interpretation of that message is subject to error, i.e. a noisy sender–receiver game. In the Aligned treatment, the expert can send a “white lie” to the receiver, eliminating the negative effects of noise and improving both parties’ payoffs. In the Conflict treatment, lies are harmful and the inability to commit to truthtelling destroys all meaningful communication in equilibrium unless there is a cost of lying. In the experiment, receivers are overly trusting and experts learn to take advantage of this. As experts gain experience they tell stronger and more frequent lies in both treatments, consistent with models of reinforcement learning. The findings suggest that neither harmful nor universal lie aversion is a factor when communication is noisy, provided individuals have time to discover their personal benefits of lies.     

Violator Avoidance Activities and Self-Reporting in Optimal Law Enforcement

Laws often encourage violators to self-report their behavior.This article studies self-reporting enforcement regimes whenviolators can engage in "avoidance" activities—activitieswhich lower an offender's risk of apprehension and punishment.Avoidance activities impart two advantages to self-reportingenforcement regimes over and above advantages identified inprior work. First, self-reporters do not engage in the costlyavoidance activities that they would otherwise undertake. Second,by avoiding avoidance, self-reporting can sometimes permit thegovernment to deter offenses with less enforcement effort.     

Why do people tell the truth? Experimental evidence for pure lie aversion

A recent experimental literature shows that truth-telling is not always motivated by pecuniary motives, and several alternative motivations have been proposed. However, their relative importance in any given context is still not totally clear. This paper investigates the relevance of pure lie aversion, that is, a dislike for lies independent of their consequences. We propose a very simple design where other motives considered in the literature predict zero truth-telling, whereas pure lie aversion predicts a non-zero rate. Thus we interpret the finding that more than a third of the subjects tell the truth as evidence for pure lie aversion. Our design also prevents confounds with another motivation (a desire to act as others expect us to act) not frequently considered but consistent with much existing evidence. We also observe that subjects who tell the truth are more likely to believe that others will tell the truth as well.     

Would I lie to you? On social preferences and lying aversion

This paper reinterprets the evidence on lying or deception presented in Gneezy (Am. Econ. Rev. 95(1):384–394, 2005). We show that Gneezy’s data are consistent with the simple hypothesis that people are one of two kinds: either a person will never lie, or a person will lie whenever she prefers the outcome obtained by lying over the outcome obtained by telling the truth. This implies that so long as lying induces a preferred outcome over truth-telling, a person’s decision of whether to lie may be completely insensitive to other changes in the induced outcomes, such as exactly how much she monetarily gains relative to how much she hurts an anonymous partner. We run new but broadly similar experiments to those of Gneezy in order to test this hypothesis. While we also confirm that there is an aversion to lying in our subject population, our data cannot reject the simple hypothesis described above either.

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Electronic Supplementary Material  The online version of this article () contains supplementary material, which is available to authorized users.      

Self-Reporting and Private Enforcement in Environmental Regulation

Self-reporting of compliance status has become a common feature in the enforcement of environmental regulation. In this paper, I generalize existing models of enforcement with self-reporting to include the possibility of private enforcement of regulation through citizen suits. This allows me to identify an additional argument for the efficiency of self-reporting: it can increase the likelihood of a successful suit and thus facilitate private enforcement of regulation. Specifically, if self-reporting sufficiently increases the expected penalty for losing a citizen suit, if the costs of private enforcement are low, and if inspection costs are high enough relative to enforcement costs, self-reporting lowers expected regulatory and social costs by allowing the regulator to rely on private enforcement and decrease his enforcement efforts.

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Truth,Trust, and Sanctions: On Institutional Selection in Sender–Receiver Games*

We have conducted a laboratory experiment to investigate the impact of institutions and institutional choice on truth‐telling and trust in sender–receiver games. We find that in an institution with sanctioning opportunities, receivers sanction predominantly after having trusted lies. Individuals who sanction are responsible for truth‐telling beyond standard equilibrium predictions, and they are more likely to choose the sanctioning institution. Sanctioning and non‐sanctioning institutions coexist if their choice is endogenous, and the former shows a higher level of truth‐telling but lower material payoffs. Our experimental findings are consistent with logit agent quantal response equilibrium with two distinct groups of individuals: one consisting of subjects who experience non‐monetary lying costs as senders and non‐monetary costs when being lied to as receivers, and the other consisting of payoff maximizers.     

Centralized institutions and cascades

Why do sudden and massive social, economic, and political changes occur when and where they do? Are there institutional preconditions that encourage such changes when present and discourage such changes when absent? I employ a general model which suggests that cascades which induce massive equilibrium changes are more likely to occur in regimes with centralized coercive power, defined as the ability to impose more than one type of sanction (economic, legal, political, social, or religious). Centralized authorities are better able to suppress subversive actions when external shocks are small, as citizens have little incentive to incur numerous types of sanctions. However, citizens are also more likely to lie about their internal preferences in such regimes (e.g., falsely declare loyalty to an oppressive government), entailing that larger shocks are more likely to trigger a cascade to a vastly different equilibrium. The model is applied to the severity of protests that followed austerity measures taken in developing nations since the 1970s.     

Effective Enforcement of a Transferable Emissions Permit System with a Self-Reporting Requirement

We propose an enforcement strategy to achieve complete compliance in a transferable emissions permit system when firms are required to provide reports of their own emissions. Like the literature on self-reporting in the enforcement of standards, we find that self-reporting can conserve monitoring costs, but for a different reason. In addition, we show that targeted monitoring—the practice of monitoring some firms more closely than others—is not necessary in a competitive permit system. Furthermore, tying penalties to the equilibrium permit price can stabilize the monitoring effort necessary to maintain full compliance in the face of permit price fluctuations.     

Self-Reporting and Ex Post Asymmetric Information

We consider a model of optimal law enforcement where sanctions are reduced for self-reporting individuals. Violators get private signals about their individual probabilities of apprehension after they committed a crime. Since violators will self-report if and only if the signal is above a specific threshold, the possibility of self-reporting has an option value that leads to a higher crime rate if the authority's effort remains unchanged. We demonstrate that self-reporting nevertheless increases social welfare even under the restriction that the crime rate must not be higher than without self-reporting. Received June 15, 2001; revised version received December 19, 2001     

Entry,reputation and intellectual property rights enforcement

We examine how reputation concerns induce a multinational to partly withhold its entry into a developing country under weak intellectual property rights (IPR) enforcement. Equilibrium IPR violations are shown to arise only in the presence of such concerns. Holding constant a multinational's incentive to innovate, better IPR enforcement encourages entry but reduces social welfare. The multinational's incentive to innovate may be inversely U‐shaped in the strength of IPR enforcement. If timed properly, however, stronger IPR enforcement can foster innovation without compromising social welfare. Testable implications concerning observable IPR violations are derived.     

Impact of government-sponsored pollution prevention practices on environmental compliance and enforcement: evidence from a sample of US manufacturing facilities

A two-way fixed effects Poisson model is used to investigate the impact of 43 EPA-sponsored pollution prevention (P2) practices on compliance and enforcement for a sample of facilities in the US manufacturing sector. I find that P2 adoption reduces environmental violations in three industries while increasing violations in two others. P2 adoption also spurs fewer enforcement actions in three industries. I further partition the P2 practices into three categories based on their approach to improve environmental performance. In doing so, I find that practices that involve changes in operating procedures—about a third of adopted P2 practices—such as instituting a self-inspection and monitoring program to discover spills or leak sources, improving maintenance scheduling and/or labeling procedures, are effective in reducing violations while practices that involve equipment or material changes are not. I also find that adopters of practices that require changes in either procedures or manufacturing equipment—about half of adopted practices—are rewarded with a more cooperative treatment of environmental infractions with fewer enforcement actions.     

Multiple equilibria in the context of inspection probabilities depending on firms’ relative emissions

This paper presents a model of environmental regulations with firms that are heterogeneous with respect to the cost for reducing emissions to the legally permitted level. Given that the enforcement capacity is limited due to budgetary constraints and that each firm's inspection probability depends on its emissions relative to other firms’ emissions, the likelihood of being punished for violations is endogenously determined and multiple equilibria may therefore arise. Hence, both good outcomes with high compliance rates and bad outcomes with many violations are possible. Multiple equilibria are most likely to emerge at intermediate levels of deterrence and at low permitted emission levels. However, it is generally not straightforward how stricter legislation impacts on equilibrium outcomes, indicating that behavioral expectations among regulated firms are an important factor to consider when adapting enforcement to changes in the law.     

NEW INSIGHTS INTO THE DECLINE OF ANTITRUST ENFORCEMENT

The total number of cases that the Antitrust Division has filed during the past decade has increased, but the number of significant criminal price-fixing cases has declined. Policy changes have had significant effects on other areas of enforcement. This paper argues, however, that the decline in this dimension of antitrust enforcement can be explained by a 1974 act of Congress that increased criminal penalties for price-fixing violations from the misdemeanor level to the felony level. According to this argument, the stiffer penalties' deterrent impact has reduced the supply of antitrust violations. In this respect, the analysis highlights the flaws in measuring the strength of enforcement from the frequency of cases filed. In addition, the paper reports empirical evidence from a multinomial logit model of defendant plea choice indicating that the felony penalties encourage defendants to plead not guilty more frequently. Furthermore, data on the outcomes of criminal antitrust cases reveal that the government has greater difficulty in obtaining convictions when felony penalties apply. From the viewpoint of enforcers, these findings imply that detecting and prosecuting significant price-fixing violations is more difficult. This, in turn, helps explain the reduction in related private enforcement.     

On the interaction between imperfect compliance and technology adoption: taxes versus tradable emissions permits

This paper analyzes the effects of the interaction between technology adoption and incomplete enforcement on the extent of violations and the rate of abatement technology adoption. We focus on price-based and quantity-based emission regulations. First, we show that in contrast to uniform taxes, under tradable emissions permits (TEPs), the fall in permit price produced by technology adoption reduces the benefits of violating the environmental regulation at the margin and leads firms to modify their compliance behavior. Moreover, when TEPs are used, the deterrent effect of the monitoring effort is reinforced by the effect that technology adoption has on the extent of violations. Second, we show that the regulator may speed up the diffusion of new technologies by increasing the stringency of the enforcement strategy in the case of TEPs while in the case of uniform taxes, the rate of adoption does not depend on the enforcement parameters.     

Enjoy the silence: an experiment on truth-telling

We analyze experimentally two sender–receiver games with conflictive preferences. In the first game, the sender can choose to tell the truth, to lie, or to remain silent. The latter strategy is costly. In the second game, the receiver must decide additionally whether or not to costly punish the sender after having observed the history of the game. We investigate the existence of two kinds of social preferences: lying aversion and preference for truth-telling. In the first game, senders tell the truth more often than predicted by the sequential equilibrium analysis, they remain silent frequently, and there exists a positive correlation between the probability of being truthful and the probability of remaining silent. Our main experimental result for the extended game shows that those subjects who punish the sender with a high probability after being deceived are precisely those who send fewer but more truthful messages. Finally, we solve for the Perfect Bayesian Nash Equilibria of a reduced form of the baseline game with two types of senders. The equilibrium predictions obtained suggest that the observed excessive truth-telling in the baseline game can be explained by lying aversion but not by a preference for truth-telling.

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Electronic Supplementary Material  The online version of this article () contains supplementary material, which is available to authorized users. Financial support through the Ramón y Cajal program of the Spanish Ministry of Education and Science is gratefully acknowledged. This work was initiated while the author was working at Maastricht University.     

Property Regimes as Information Regimes: Efficiency and Economies of Joint Production

The paper argues that it is useful to view property regimes asinformation regimes. A conceptual model and numerical example are usedto show that, under some reasonable assumptions, a common propertyregime is preferable to a private property regime when property regimesare viewed as information regimes. The paper considers a case ofidiosyncratic risk in a dynamic grazing context where the marginality ofthe resource is such that insurance markets are thin or non-existent.Agents are thought to be risk averse and exogenous enforcement of a risksharing scheme is not feasible. The policy implication is that theestablishment and maintenance of a common property regime is shown to bea (possibly) reasonable institutional response in the face of difficultand particular circumstances when property regimes are viewed asinformation regimes.     

Evaluation periods and asset prices: Myopic loss aversion at the financial marketplace

Examining myopic loss aversion (MLA [Benartzi, S., Thaler, R., 1995. Myopic loss aversion and the equity premium puzzle. Quarterly Journal of Economics 110, 73–92]) in real financial markets has several merits: in repeated situations investors may learn from each other, aggregate market prices may eliminate individual violations of expected utility, and individuals may decide differently in real situations than in laboratories. We utilize a special feature at the Tel Aviv stock exchange (TASE): occasional shifts of securities from daily to weekly trading. If investors’ decisions are influenced by trading frequency manipulation, then returns should be predictably affected. MLA results in a negative relation between risk aversion and the length of the evaluation period. Thus, the longer the evaluation period is, the lower the expected return is. This intuition also suggests reduced sensitivity to economic events in longer evaluation periods. We find strong support for MLA in the marketplace when testing expected return, as well as return sensitivity.     

Is there a self-enforcing monetary constitution?

A self-enforcing monetary constitution has rules that agents acting within the system will uphold even in the presence of deviations from ideal knowledge and complete benevolence. It thus does not require external enforcement. What would such a constitution look like? I show that two regimes—a version of nominal gross domestic product targeting that relies on market implementation of monetary policy, and free banking—meet these requirements for self-enforcing monetary constitutions. The analysis draws insights from political economy, and from constitutional political economy in particular.     

Environmental Protection,Agency Motivations,and Rent Extraction: The Regulation of Water Pollution in Louisiana

Direct environmental regulation has been in place in the United States for more than twenty-five years. Yet there has been little study of what actually affects regulatory enforcement levels. This study examines enforcement issues by focusing on water quality enforcement by the Louisiana Department of Environmental Quality. The study finds that penalties are more likely to occur, and are likely to be higher, the more serious a firm's violation of a regulation. Penalties are also more likely, and likely to be higher, if a firm has a previous record of environmental violations. In contrast to other studies, however, we do not find that enforcement varies across regional offices. In addition, we did not find any systematic effects of the Weingast and Moran (1983) theory of legislative dominance. We did, however, find evidence of rent extraction, along the lines of McChesney (1987; 1991).