A generalized model for reputational sanctions and the (ir)relevance of the interactions between legal and reputational sanctions
Document Type
Article
Publication Date
6-2016
Journal Title
International Review of Law and Economics
ISSN
0144-8188
DOI
10.1016/j.irle.2016.03.002
Abstract
Reputational sanctions and stigmatization costs share many things in common. In particular, wage reductions in the labor market caused by stigmatization (Rasmusen, 1996), and profit reductions in commercial markets caused by reputational losses due to a firm's previous wrong-doings (Iacobucci, 2014) share many similarities. In this article, I construct a model in which Rasmusen (1996) and Iacobucci (2014) emerge as special cases. I use this model to show that increasing the legal sanction (or the probability of detection) cannot cause a reduction in reputational losses that off-sets the increase in expected total sanction. This clarifies ambiguities in the previous literature, and implies that, absent further considerations, deterrence is enhanced by an increase in legal sanctions and/or the probability of detection. Thus, standard Beckerian dynamics are preserved even when reputational sanctions interact with formal sanctions.
First Page
86
Last Page
92
Num Pages
7
Volume Number
46
Publisher
Elsevier
Recommended Citation
Murat C. Mungan,
A generalized model for reputational sanctions and the (ir)relevance of the interactions between legal and reputational sanctions,
46
Int'l Rev. L. & Econ.
86
(2016).
Available at:
https://scholarship.law.tamu.edu/facscholar/1865