Job Market Paper:

• Fines vs. Fees: The Impact of Monetary Penalties on Prosocial Motivation

Abstract: We investigate the impacts of distinct monetary penalties using a modified dictator game that allows participants to take money from others. We introduce a penalty of equal monetary value in two formats: one mimicking a fine, imposed  after taking money, and another mimicking a fee, paid before taking money. Our findings reveal that the fee is more effective than the fine in reducing the amount of money taken. In comparison to a situation with no penalty, the fee significantly reduces the aggregate amount taken, whereas the fine shows no significant overall impact. We demonstrate that the differences across conditions can be explained by the individual heterogeneous impact of the penalties: some individuals increase the amount they take when facing a penalty, indicating a crowding-out effect, while others stop taking money when confronted with the penalty, evidence of a crowding-in effect. The fee proves to be more effective in promoting crowding-in than the fine, while crowding-out effects are similar across formats, leading to the overall result. Additionally, we show that the implementation of monetary penalties induces changes in perceived social norms. As individuals conform to these norms, these changes partially explain the crowding-out and crowding-in effects, but they cannot account for the differences across fee and fine.