The Effect of Digitalization on Penalty Payments: An Experimental Investigation

Abstract

The method of payment for penalties such as traffic tickets or library fines has become increasingly digitalized, with possible implications on the future effectiveness of deterring opportunistic behavior. Several recent experimental studies have suggested that people treat digital cash equivalents differently from physical cash. This paper is the first to compare the efficacy of punishment between cash and electronic cash-exchangeable penalties in a laboratory setting. Our results indicate that while both forms of punishment increase cooperation, cash penalties are significantly more effective. Interestingly, this difference gradually disappears over time.

Keywords: Experiment, Punishment, Endowment effect, Tangibility effect

JEL Classification: C91 ,D03, D64