More Carrots, Fewer Sticks

One project that I’m working on (but haven’t written up yet) is about using120px-Falling_hare_bugs liability rules to reward socially useful behavior.  The law is replete with civil and criminal sanctions against wrongful conduct.  Public policy is also enthusiastic about using property rights to encourage innovation or investment.  Less attention, though, is given to what I call “rewards” for positive action.

Consider the concept of salvage in admiralty.  Salvage is a liability rule that gives a vessel a claim against another vessel for a reward (determined ex post by a court) when a successful rescue is made.  This is more effective than imposing an affirmative duty on vessels to help others and sanctioning them if they do not, largely because the enforcement costs of such a duty would be prohibitive.  Likewise, there is no property rule that can achieve the worthy objective of preventing ships or their cargo from sinking once they are in distress.  Other rewards are set ex ante by an administrative body and tailored to a particular issue.  For example, the police often offer rewards for information leading to the arrest of a suspect.  This is better than threatening people with accomplice liability.

Why does this matter?  Part of the answer is that there are many areas of law where lack of compliance is a big problem.  Tax evasion, unauthorized downloading of copyrighted material, and companies that hire illegal aliens are three examples.  Sanctioning the people who violate these obligations has not worked well (assuming that people actually want these laws enforced and aren’t just grandstanding).  Property rights also do nothing for these problems.

Here’s a thought experiment.  Suppose the Government said that everyone who paid their income taxes in 2009 would be eligible would a lump sum lottery payout of $100 million drawn randomly.  This (or some equivalent) may induce far more than $100 million in tax payments to the Treasury.  In effect, this is how state lotteries work — it’s a voluntary tax or a probabilistic claim on a liability rule.  Now before you get too excited, there is a problem in that such a plan would have to be accompanied by a credible amnesty for past violations, and people might well reject the scheme on that basis.  The point, though, is that in some of these “lawless” situations we might want to think more creatively about carrots instead of relying on sticks that don’t work.

You may also like...

7 Responses

  1. Larry Rosenthal says:

    Why, I wonder, is it “better” to offer “rewards for information leading to the arrest of a suspect” than to “threaten[] people with accomplice liability”? Rewards often generate large quantities of unreliable leads. For example, it appears that the decision to offer bounties for information leading to the arrest of suspected terrorists was a major reason that many innocent persons were taken into custody in Afghanistan.

    To be sure, the authorities sometimes do offer rewards (more often for information leading to a conviction, not an arrest), but not in the routine case. This usually occurs only in high-profile investigations that lack promising leads. This is when the authorities are willing to expend the resources needed to sort through a large volume of leads of often dubious reliability provided by those who seek a reward, and are willing to present their hunches as facts in the hope that they turn out to be right, and can then claim a reward.

    Conversely, threats of accomplice liability in order to obtain cooperation are self-regulating in important respects. If the authorities have little ability to actually convict the accomplice, the threat is empty. The value of sentencing discount to the accomplice, in turn, in measured by the value that the cooperator ultimately has to the investigation — something that is determined by a neutral sentencing judge only after the accomplice’s account has been tested by further investigation, and often by cross-examination in the trial of the individual against whom the accomplice has cooperated. Moreover, if the discount is too high — such as a grant of immunity — this compromises the accomplice’s credibility in the eyes of the trier of fact, so prosecutors have an incentive to avoid excessive discounts. It is, moreover, far from apparent that an accomplice seeking a reduced sentence is less likely to provide inaccurate information than an individual seeking a reward.

    This seems to me to be one of those occasions on which an empirical claim really ought to be supported with empirical evidence.

    Larry Rosenthal
    Chapman University School of Law

  2. Gerard Magliocca says:

    Hi Larry,

    Well, my point is that there are some circumstances where a reward is the best approach. So I’m interested in thinking about whether a general principle can be developed around that concept. You are quite right that there are many instances in which sanctions (criminal or civil) are the superior choice.

  3. A.J. Sutter says:

    Larry’s discussion of accomplice liability assumes that there is an alleged accomplice who’s been identified, and who can be pressured. Rewards, on the other hand, can be offered to the community as a whole; as Larry points out, this tactic is often used is in cases where there aren’t significant leads in the case. Threatening the entire community with accomplice liability is not so effective in peacetime (albeit perhaps a common tactic in wartime). While empirical evidence for each assertion would be helpful, I think the situations Gerard and Larry are addressing are complementary.

    One area in which the rewards approach has gotten a lot of attention recently is as a way to reduce to intellectual property “anti-commons” problems.

  4. Lawrence Cunningham says:

    I concur with the post’s thesis. I like the attempt to offer a broad framework. I contributed the same thesis in the particular context of corporate compliance, especially financial statement auditing, by prescribing a shift from the current liability threat for audit failure to a rewards system for discovering and reporting financial misstatements. It is called Beyond Liability: Rewarding Effective Gatekeepers, 92 Minn. L. Rev. 323 (2007) (available at ssrn.com/abstract_id=1022360).

  5. Gerard Magliocca says:

    AJ & Larry,

    Thanks — your thoughts about anti-commons and corporate compliance are really helpful.

  6. ParatrooperJJ says:

    There is an affirmative duty to rescue a vessel in distress already.

  7. Gerard Magliocca says:

    Not under most circumstances. Besides, you would be hard pressed to find many examples of a vessel being sanctioned for failing to rescue another. The enforcement costs are just way too high. (I’m talking about private vessels, not about the Coast Guard or the Navy.)