Job Market Paper:

(2023) - The Impact of Monetary Penalties on Prosocial Motivation: Unveiling Crowding-Out and Crowding-in Effects(Teixeira)

Abstract: We investigate the impacts of distinct monetary penalties using a modified dictator game that allows participants to extract money from others. We introduce a penalty of equal monetary value in two distinct formats: a 'fine,' imposed after taking money, and a 'fee,' paid before taking money. Our findings reveal that the fee is more effective than the fine. In comparison to a situation with no penalty, the fee significantly reduces the aggregate amount taken, while the fine exhibits no significant overall impact. Additionally, we observe diverse effects of the penalties on individuals' prosocial behavior. Some individuals take more money when facing a penalty, indicating a crowding-out effect, while others abstain from taking money when confronted with the penalty, even when they take substantial amounts without penalties, providing evidence of a crowding-in effect. Overall, the fee proves to be more effective in promoting crowding-in than the fine, while crowding-out effects are similar across both conditions. Furthermore, we demonstrate that the implementation of monetary penalties induces changes in perceived social norms. As individuals conform to these norms, such changes partially elucidate the crowding-out and crowding-in effects.