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Carrots, Sticks, and the Multiplication Effect

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  • Gerrit De Geest

Abstract

Although a punishment can be applied only once, the threat to punish can be repeated several times. This is possible because when parties comply, the punishment is not applied and can thus be used to support a new threat. We refer to this feature of sticks as the "multiplication effect." The same is not possible with promises to reward since carrots are used up every time a party complies; hence, at each round a new reward is needed. We show that the multiplication effect of sticks has pervasive consequences in economics and law and provides a unified explanation for seemingly unrelated phenomena such as comparative negligence, legal aid, the dynamics of riots and revolutions, the use of property rules, the commons problem, and the most-favored-nation clause in settlement negotiations. (JEL K14, K42) The Author 2009. Published by Oxford University Press on behalf of Yale University. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org, Oxford University Press.

Suggested Citation

  • Gerrit De Geest, 2010. "Carrots, Sticks, and the Multiplication Effect," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 26(2), pages 365-384.
    • Handle: RePEc:oup:jleorg:v:26:y::i:2:p:365-384
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    File URL: http://hdl.handle.net/10.1093/jleo/ewn026
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    Citations

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    Cited by:

    1. Auerbach, Jan U. & Fonseca, Miguel A., 2020. "Preordered service in contract enforcement," Games and Economic Behavior, Elsevier, vol. 122(C), pages 130-149.
    2. Fabbri, Marco, 2015. "Shaping tax norms through lotteries," International Review of Law and Economics, Elsevier, vol. 44(C), pages 8-15.
    3. Ken Yahagi, 2023. "Sanctions and rewards with a motivated agent," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(4), pages 2057-2067, June.
    4. M. Fabbri & P. N. Barbieri & M. Bigoni, 2016. "Ride Your Luck! A Field Experiment on Lottery-based Incentives for Compliance," Working Papers wp1089, Dipartimento Scienze Economiche, Universita' di Bologna.
    5. De Geest, Gerrit & Dari-Mattiacci, Giuseppe & Siegers, Jacques J., 2009. "Annullable bonuses and penalties," International Review of Law and Economics, Elsevier, vol. 29(4), pages 349-359, December.
    6. Jaka Cepec & Mitja Kovac, 2016. "Carrots and Sticks as Incentive Mechanisms for the Optimal Initiation of Insolvency Proceedings," DANUBE: Law and Economics Review, European Association Comenius - EACO, issue 2, pages 79-103, June.
    7. Giangiacomo Bravo & Flaminio Squazzoni, 2013. "Exit, Punishment and Rewards in Commons Dilemmas: An Experimental Study," PLOS ONE, Public Library of Science, vol. 8(8), pages 1-9, August.
    8. De Geest, Gerrit, 2013. "N problems require N instruments," International Review of Law and Economics, Elsevier, vol. 35(C), pages 42-57.

    More about this item

    JEL classification:

    • K14 - Law and Economics - - Basic Areas of Law - - - Criminal Law
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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