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Punishment Induced Detterence: Evidence from the Video Rental Market

  • Author(s): Fishman, Peter
  • Pope, Devin G.
  • et al.
Abstract

Does the memory of recently being punished deter criminals from committing crimes? Criminologists have long discussed the psychological effect that receiving a punishment can have on future criminal behavior. While it may exist anecdotally, this psychological deterrent effect is difficult to disentangle from classical deterrence in a real-world setting because of changes in information and incentives that typically occur when an individual is punished. In this paper, we test for punishment-induced deterrence in a controlled market where issues of changes in expected benefits and costs can be addressed: the video-rental market. We explore the effect of having to pay a late fee on customer behavior and find evidence of negative state dependence. Specifically, we find that paying a late fee reduces the probability of paying a late fee in the subsequent visit by 19% and that this deterrent effect decays quickly over time. We show that this behavior is not mitigated by experience and discuss the implications of these findings on consumer rationality, optimal crime policy, and marketing.

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