Formal and Informal Enforcement Mechanisms: The Substitution and Complementary Effects

34 Pages Posted: 27 May 2008

See all articles by Ajai Gaur

Ajai Gaur

Rutgers Business School - Newark and New Brunswick

Peter Hwang

affiliation not provided to SSRN

Jens Joerg Lauschke

National University of Singapore (NUS)

Date Written: May 24, 2008

Abstract

We propose that formal and informal enforcement mechanisms have a substituting as well as complementing effect. Building on the literature on cooperation in the provision F public good, we argue that the effectiveness of punishment vs. protection as a formal mechanism hinges on the extent to which we are more tempted or apprehensive, which is shaped by the configuration of the informal context of trust and time horizon. We test our arguments in a public goods experiment. We address the substituting effect of formal and informal enforcements mechanisms by demonstrating that each can enhance public good contributions. We address the complementing effect by demonstrating that the effectiveness of formal enforcement mechanisms depends on the configuration of the informal ones along trust and time horizon.

Keywords: Trust, Time horizon, Formal enforcement, Informal enforcement, Punishment, Protection

Suggested Citation

Gaur, Ajai S. and Hwang, Peter and Lauschke, Jens Joerg, Formal and Informal Enforcement Mechanisms: The Substitution and Complementary Effects (May 24, 2008). Available at SSRN: https://ssrn.com/abstract=1137505 or http://dx.doi.org/10.2139/ssrn.1137505

Ajai S. Gaur (Contact Author)

Rutgers Business School - Newark and New Brunswick ( email )

Newark, NJ
United States

Peter Hwang

affiliation not provided to SSRN ( email )

Jens Joerg Lauschke

National University of Singapore (NUS) ( email )

10 Kent Ridge Crescent
Singapore 117591
REPUBLIC OF SINGAPORE
(65) 874-6268 (Phone)
(65) 777-6589 (Fax)

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