Economic behavior is a many-headed creature, which I will illustrate by the often cited example of the day care centers of Haifa (Israel). When these day care centers started to fine parents for being late, the parents came late more often, not less. Clearly a failed incentive scheme, in which economic incentives replaced moral incentives?

Consider now the following, divergent, line of thought. Without a fine, parents face uncertainty about the consequences of being late. Maybe their kid gets removed from the day care center, or the care taker may secretly retaliate by mistreating the kid. People are known to be risk averse, so given this unknown price, they rather err on the side of caution and show up on time.

Enter the fine on being late. Revealing the “price” of being late takes away the uncertainty parents face. A fine is not just a fine, but also a piece of information. It creates room for “transactions” that were unthinkable under uncertainty. Whether the fine covers all costs does not matter. The fine covers at least some costs, making the previously marginal parent to come late too. Therefore, it is impossible to infer from this kind of examples that incentive schemes replace morals with economics.


The original paper makes the above point too, while the more far-reaching potential inference is often only mentioned.