No abstract

We analyze experimental data to assess whether the deterrent effect of expected fines depends on who receives the fines’ proceeds. We compare behavior in treatments when the revenue is a reward for enforcement agents to the alternative when fines are transferred to society at large. Most important, with a fixed detection probability, potential offenders’ material incentives are held constant across treatments. Our evidence suggests that the deterrent effect of expected fines is greater when enforcement agents obtain the fine revenue. Our results also document that the characteristics of enforcers who are willing to incur private costs to create a positive detection probability seem to depend on whether fines reward enforcers or are transferred to society at large.

When choosing between two goods, consumers anticipate the utility they expect to derive from each product. However, such anticipations are subject to several sources of error, such as quality or price misperception and overoptimism about one’s capacity to use a product. The present paper studies the effect of inaccurate utility anticipations on consumer choice and ultimately on the market outcome in a vertically differentiated duopoly. I come to the conclusion that utility misperception can lead consumers to make suboptimal decisions ex post, although the choice seemed rational at the time of purchase. I show that in a vertically differentiated duopoly, firms are subject to two opposite incentives regarding consumer education. Moreover, the firms’ incentives to educate consumers are not necessarily aligned with the socially efficient outcome. Therefore, this paper also explores several policies aimed at mitigating the negative consequences of consumer misperception.