A Kindergarten Test-Bed for EU Deficit Sanctions

29. October 2010 by Herman Brodie

At the kindergarten, the rules stipulate that children have to be picked up by 16:00. Late pick-ups are annoying for the caregivers, as one of them has to stay behind with the child until the errant parent arrives. It does not happen too often – the sight of one’s child sitting alone among the assembled buckets, mops and other cleaning materials, as well as the stern glance from the caregiver, makes sure of that. Nonetheless, the kindergarten management decided to impose fines for late pick-ups as a further disincentive for parents. In the first few weeks, there was little change in the frequency of late pickups. But, by the seventh week, there was a sharp increase in the number of latecomers – roughly twice as many as before. After 16 weeks the fines were scrapped. However, the number of late-arriving parents remained at double at the pre-existing level.

The above tale was the result a real academic study[1]. It revealed not only the impact of rules or norms in determining behaviour, but also that of penalties. It gives us another way of looking at the current dispute within the eurozone nations, some of which are hell bent on imposing new and tougher sanctions on member nations who flaunt the deficit rules. Even without a penalty, the rules alone serve as a social norm, a benchmark against which members of a community can measure themselves and can be measured by others. As long as this is the most dominant norm, adherence tends to be very rigid. The problem is that other norms exist which can periodically dominate: a parent may need to stay a little longer at work to send an important mail; a national government may have an election to win.

Adherence to the norm also changes when penalties are introduced; a fine invites a simple cost-benefit analysis. If the fine is too low, rule-breakers may be able to justify their behaviour with advantages elsewhere. Further, they may rightly perceive that settlement of the sanction frees them from further criticism. Finally, as we see in the study, once rule-breaking becomes frequent, it takes over as the new norm.

To be effective a fine would have to be massive which, for a nation that already has deficit problems, would be wholly counter-productive. A social norm alone is likely to see its influence diminished by domestic imperatives, but it would still be better than one carrying a small fine. However, markets and rating agencies could exert their own pressure if the rules and members’ respective performances are transparent. The first problem for the EU leaders, though, is that the social norm has already shifted as a result of the widespread infractions.

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[1] Gneezy, U. & Rustichini, A. (2000) – A Fine is a Price, Journal of Legal Studies, Vol.24

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vposted on 29. October 2010 at 1:11 pm

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