Fines versus Damages: Experimental Evidence on Investments in Care

This paper studies the differential effects of fines and damages on people’s investment in accident prevention. We report results from a series of experiments in which the level of monetary transfers after an accident is maintained across the two policy instruments such that standard theory predicts the behavioral irrelevance of the choice of instrument. However, we find that fines induce lower investments in care than damages when revenue from fines is used for pro-social ends. We discuss possible behavioral channels that may explain our findings.