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A generalized model for reputational sanctions and the (ir)relevance of the interactions between legal and reputational sanctions

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  • Mungan, Murat C.

Abstract

Reputational sanctions and stigmatization costs share many things in common. In particular, wage reductions in the labor market caused by stigmatization (Rasmusen, 1996), and profit reductions in commercial markets caused by reputational losses due to a firm's previous wrong-doings (Iacobucci, 2014) share many similarities. In this article, I construct a model in which Rasmusen (1996) and Iacobucci (2014) emerge as special cases. I use this model to show that increasing the legal sanction (or the probability of detection) cannot cause a reduction in reputational losses that off-sets the increase in expected total sanction. This clarifies ambiguities in the previous literature, and implies that, absent further considerations, deterrence is enhanced by an increase in legal sanctions and/or the probability of detection. Thus, standard Beckerian dynamics are preserved even when reputational sanctions interact with formal sanctions.

Suggested Citation

  • Mungan, Murat C., 2016. "A generalized model for reputational sanctions and the (ir)relevance of the interactions between legal and reputational sanctions," International Review of Law and Economics, Elsevier, vol. 46(C), pages 86-92.
    • Handle: RePEc:eee:irlaec:v:46:y:2016:i:c:p:86-92
    DOI: 10.1016/j.irle.2016.03.002
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    References listed on IDEAS

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    7. Rasmusen, Eric, 1996. "Stigma and Self-Fulfilling Expectations of Criminality," Journal of Law and Economics, University of Chicago Press, vol. 39(2), pages 519-543, October.
    8. Alon Harel & Alon Klement, 2007. "The Economics of Stigma: Why More Detection of Crime May Result in Less Stigmatization," The Journal of Legal Studies, University of Chicago Press, vol. 36(2), pages 355-377, June.
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    10. Michael Faure & Laarni Escresa, 2011. "Social Stigma," Chapters, in: Francesco Parisi (ed.), Production of Legal Rules, chapter 12, Edward Elgar Publishing.
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    Citations

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    Cited by:

    1. Grolleau, Gilles & Mungan, Murat C. & Mzoughi, Naoufel, 2022. "Seemingly irrelevant information? The impact of legal team size on third party perceptions," International Review of Law and Economics, Elsevier, vol. 71(C).
    2. Yahagi, Ken, 2021. "Law enforcement with motivated agents," International Review of Law and Economics, Elsevier, vol. 66(C).
    3. Liu, Yan, 2023. "Essays on credit rating agencies in China," Other publications TiSEM b54b3315-1185-48b8-aaf8-8, Tilburg University, School of Economics and Management.
    4. Mungan, Murat C., 2017. "Reducing crime through expungements," Journal of Economic Behavior & Organization, Elsevier, vol. 137(C), pages 398-409.
    5. Mazyaki, Ali & van der Weele, Joël, 2019. "On esteem-based incentives," International Review of Law and Economics, Elsevier, vol. 60(C).
    6. repec:pra:mprapa:113760 is not listed on IDEAS
    7. Wenming Xu & Yan Liu, 2021. "Does reputational capital affect credit rating agencies?: empirical evidence from a natural experiment in China," European Journal of Law and Economics, Springer, vol. 51(3), pages 433-468, June.
    8. Fluet, Claude & Mungan, Murat C., 2022. "Laws and norms with (un)observable actions," European Economic Review, Elsevier, vol. 145(C).

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