ABSTRACT
In a recently published popular book entitled Freakonomics, authors Levitt and Dubner (2005) describe an experiment in several Israeli day care centers in which a fine was put in place to try to discourage parents from being late in picking up their children.1 Economic theory predicted that a penalty for late pick-ups would reduce the number of late pick-ups. However, the outcome of the experiment was exactly the opposite of what theory predicted, i.e. when the penalty was put in place, the number of late pick-ups increased instead of decreasing. Levitt and Dubner cite two reasons to explain this unexpected outcome: (1) the magnitude of the penalty that was imposed was too low (only $3), and (2) the day care had replaced a moral incentive or penalty for being late (i.e. the associated guilt) with an economic penalty, which parents were apparently much more willing to bear. Although this was a field rather than a laboratory experiment, it highlights the important role that experiments can play in testing theory and the effectiveness of alternative policy interventions in a relatively low cost way. The chapters on regulation and compliance in this volume provide additional evidence in support of this view.
