Mind the Gap – Between the harsh world of economics and the social world that I’d like to live in

Professors Uri Gneezy (from the University of California in San Diego) and Aldo Rustichini (from the University of Minnesota) got the opportunity to establish a series of experiments to explore the transition from social norms to market norms and back again. They wrote their results up in a paper called “A Fine is a Price” in the Jounal of Legal Studies in 2000.

They had been invited in to study a day care centre in Israel to discover whether the introduction of a fine for parents arriving late to pick up little Jonny would act as a useful deterrent. They concluded that the fine wasn’t a very effective deterrent and worse than that it has long-term negative effects. Before the introduction of the fine; there was a social contract in place and hence there were effective social norms about it being unacceptable to keep the carers waiting and in standing out so far from the other crowd of timekeeping parents. In this case (in Israel), the guilt from keeping people waiting, made parents think twice before doing it again. Persistent offenders found the peer pressure from the other Mums (and Fathers) unacceptable. However, after the introduction of the fining system, the nursery inadvertently replaced the social norms and the social contract with market norms and a market contract. Now that the parents were paying for their tardiness, they could now make a judgement as to whether the impact of them having to leave on time outweighed the fines that they knew would be imposed. The number of cases of parents arriving late increased, not decreased, after the introduction of the fine. (Perhaps, they set the value wrong; but I’ve got no information on that.)

However, the story then took an interesting turn for the worse. Recognising the error of their ways, the nursery then decided to remove the fine. They figured that they would then be back to the social contract. Right ? – Wrong ! Once the fine was removed, the behaviour of the parents did not reverse. In fact, when the fine was removed there was a further slight increase in the number of late pick-ups by parents. After all, both of the social restorative effect and the market force had been removed.

The moral of the story is that once a social norm collides with a market norm, the social norm goes away for a long time. In other words, social relationships are not easy to re-establish.

My next post applies this behavioural economics to the implementation of road pricing in the UK and cautions transport policy makers to “mind the gap”.

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