Living Economics

Is a Fine a Price?
A fine which normally connotes shame can be confused with a price which connotes right if a fine is not properly implemented.

Many parents put their children into daycare. Inevitably, some will have to pick their children up late on occasion. Two Israeli researchers decided to study the effectiveness of imposing fines on late parents. They implemented a system of fines in six similar daycares and used four as controls. Now that there is a cost imposed, you might expect that parents would make a greater effort to arrive on time. However, this is not the case. Not only did the number of late parents not go down, it actually went up. There are two reasons why this surprising finding actually makes sense.

Prior to the system of fines being put into practice, parents were not certain what the potential punishment of routine tardiness would be. In this scenario, the consequence of being late is both uncertain and possibly serious. However, after the implementation of the fine system, parents have "reason to believe that a fine is the worst that can happen."

The second reason why more parents were tardy may be that they thought the fine was not a fine; but a price (cf. Prices and Sanctions). Before the fines were implemented, parents believe that the teachers who stay late to watch their children are making a gift of their time. This "generous, nonmarket activity" inspires parents to "not take advantage" of the teacher's kindness. Thus, once the fines are imposed, parents no longer view the teachers' actions as charity, but instead as a service that can be bought for the price of a fine. So, why would parents think of a fine as a price?

Typically, a fine carries the connotation of having failed in some way; there is shame attached to having to pay a fine. Prices, however, have no social stigma. Since no one but the teachers who stayed late and other late parents ever knew who came late and how often, there could be no social sanctions. Also, the fines the daycares charged were not paid when the children were picked up; they were billed at the end of that month along with the month's charges for normal child care. This also caused the fines to function as more like a price. Additionally, the amount of the fine imposed was fixed. It didn't matter how often a parent was late or how late that parent was. This is just what we would expect of a price for a service. Thus, the lack of stigma, billing, and the flat rate fine all indicated to parents that they were actually paying a price for a service.

References:
  • Gneezy, U. and A. Rustichini. "A Fine is a Price." The Journal of Legal Studies, Vol. 29, No. 1 (Jan., 2000), 1-17.
Access Tools
• Advanced Search
• Browse Micro
Comparative advantage (14) Competitive strategy (27) Costs and opportunities (53) Entrepreneurship (3) Externality (28) Free Market Solutions (17) Free Ridership (3) Game Theory (22) Incentives (13) Income Distribution (25) Information (19) Labor Market (24) Marginal optimization (33) Market Demand (17) Market Entry (9) Market Exit (2) Market Intervention (12) Market Structure (29) Market supply (4) Material Flow (2) Miscellaneous (3) Price Discrimination (17) Pricing Strategy (46) Profit maximization (48) Property Rights (42) Regulation (16) Rent Seeking (2) Risk Taking (12) Scarcity (10) Tastes & Preferences (27) Taxes (7) Technology (9) Type of goods (31) What Price Means (27)
• Browse Macro
Boom and Bust (9) Budget Balance (12) Comparative advantage (13) Economic Development (1) Economic Indicators (6) Fiscal Policy (12) Incentives (1) Income and output (25) Income Distribution (5) Labor Market (6) Money and Credit (20) Regulation (5) Rent Seeking (1) Saving (6) Taxes (4) Technology (1) Trade and Foreign Exchange (30)
• Glossary
List All
Search

• Microeconomics Lectures • Macroeconomics Lectures
Instructor
• Instructor Log in • Sample TOC • Demo/Register • Video Tour
Student
• Student Log in
Close
Instructor Log in

Class
Close
Student Log in


Open Menu
Term
Definition