468. Can Punishment Generate Specific Deterrence without Updating? Analysis of a Stated Choice Scenario

Dietrich Earnhart and Lana Friesen, School of Economics Discussion Paper No. 468 July 2012, School of Economics, The University of Queensland. Australia.

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Abstract

This study explores the specific deterrence generated by punishment in the context of regulatory violations with a focus on the distinction between upward revisions to future punishment parameters – likelihood and severity – and the experience of being penalized. In order to avoid the pitfalls of empirically analyzing actual choices made by regulated entities, e.g., measuring entities’ beliefs regarding the likelihood and size of future penalties, our study examines behavior associated with a stated choice scenario presented within a survey distributed to the environmental managers of facilities regulated under the U.S. Clean Water Act. This choice of respondents strengthens the external validity of our empirical results. Based on a variety of statistical methods, our empirical results strongly and robustly reject the standard hypothesis that specific deterrence stems solely from upward revisions to punishment parameters while supporting the alternative hypothesis of experiential deterrence, whereby facilities focus on recent experiences to shape their compliance behavior.