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On the Interaction between Legal and Reputational Sanctions

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  • Edward M. Iacobucci

Abstract

This article shows that reputational sanctions are not, as the literature implicitly assumes, independent of legal penalties. Rather, observers will assess a wrongdoer's type in light of conduct and the expected legal sanctions for that conduct. For example, if a person commits a wrong even in the face of onerous legal penalties, observers will tend to draw a more negative inference about the wrongdoer's propensity for wrongdoing than if legal penalties were light. On the other hand, onerous legal penalties may deter wrongdoing even for actors with a relatively high propensity for wrongdoing, which also affects reputational penalties. In addition, this article demonstrates that the literature's focus on deterrence in considering the relationship between formal and informal penalties is too narrow. It may be socially preferable in some circumstances to adjust legal penalties to allow actors to reveal their types than to adjust legal sanctions to promote optimal deterrence.

Suggested Citation

  • Edward M. Iacobucci, 2014. "On the Interaction between Legal and Reputational Sanctions," The Journal of Legal Studies, University of Chicago Press, vol. 43(1), pages 189-207.
    • Handle: RePEc:ucp:jlstud:doi:10.1086/675761
    DOI: 10.1086/675761
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    Cited by:

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    2. Bruno Deffains & Claude Fluet, 2020. "Social Norms and Legal Design," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 36(1), pages 139-169.
    3. Franco Mariuzzo & Peter Ormosi & Zherou Majied, 2019. "Public and reputational sanctions: The case of cartels," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2018-06v3, Centre for Competition Policy, University of East Anglia, Norwich, UK..
    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. Andrew F. Daughety & Reinganum F. Reinganum, 2014. "Settlement and Trial: Selected Analyses of the Bargaining Environment," Vanderbilt University Department of Economics Working Papers 14-00005, Vanderbilt University Department of Economics.
    8. 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.
    9. 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.
    10. Mariuzzo, Franco & Ormosi, Peter L & Majied, Zherou, 2020. "Fines and reputational sanctions: The case of cartels," International Journal of Industrial Organization, Elsevier, vol. 69(C).
    11. Laure de Batz, 2018. "Financial Impact of Regulatory Sanctions on French Listed Companies," Working Papers IES 2018/10, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Apr 2018.
    12. Claude-Denys Fluet & Murat C. Mungan, 2017. "The Signal-Tuning Function of Liability Regimes," Cahiers de recherche 1707, Centre de recherche sur les risques, les enjeux économiques, et les politiques publiques.
    13. Fluet, Claude & Mungan, Murat C., 2022. "Laws and norms with (un)observable actions," European Economic Review, Elsevier, vol. 145(C).
    14. 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.

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