One of the most pivotal changes that unfolded during the past three decades was the reach of markets and market values into spheres of life traditionally held sway over by nonmarket norms.
Healthcare, education, public safety, and environmental protection are some examples of the sectors where the use of market logic was for the most part unheard-of 30 years ago.
While nowadays, they are facing an era on market triumphalism that began in the early 1980s with Thatcherism and Reaganomics – policies that led to a heady time of market faith and deregulation.
The consequences of the introduction of a market-based logic are not merely tangibles, since it also implicitly leads people to express and promote attitudes towards traded goods.
Economists often assume that markets are inert, but this is untrue. Markets leave their mark on the goods being exchanged, sometimes, leading to the crowding out of non-market values in favor of market ones.
When we decide that certain goods may be bought and sold, we decide, at least implicitly, that it is appropriate to treat them as commodities, as instruments of profit and use. But it can be argued that not all goods are properly valued in this way. A glaring example is slavery, appealed because it treated human being as a commodity. This treatment fails to value human being as persons, worthy of dignity and respect.
The consequences of the introduction of a market-based view were investigated by a study accomplished by Gneezy and Rustichini where the assumptions of the standard deterrence theories were violated due to the introduction of a market.
The study was conducted in day-care centers located in Israel, where parents used to arrive late to collect their children, burdening the caretakers that were forced to extend their stay beyond the closing time – working longer and without getting paid extra.
The researchers tried to address the problem from different perspective. Firstly, they thought the natural option was to introduce a fine for late parents so that every time a parent was late to pick up his/her children, he/she would have to pay a monetary fine.
According to the standard economic model of deterrence theory, the introduction of a penalty that leaves all other conditions unchanged should reduce the occurrence of the behavior subject to the fine. Although of this seems extremely logical and plausible, and it should not be ventured to consider deterrence theory as a universal truth.
As Thaler would point out indeed, we are dealing with “humans” here and not “econs“!
The result of the experiment showed and opposite trend that the one expected: following the introduction the fine, the number of late comers not only did not fall, but increased steadily (Table 1).
Although it was considered the possibility that the disincentive did not perform its functions, the possibility of an increase in the behavior being punished was not even considered.
Nonetheless, the psychological and economics literature does not provide an explanation for these results. If so, what are the causes of this phenomenon?
Let’s bring in one of the main consequences of the shifting towards a society in which everything is up for sale: the corruption of a good.
The introduction of a price (in this case a penalty) changes people’s perception of their environment and creates a cognitive bias promoting certain attitudes towards the goods being exchanged.
Parents, prior to the introduction of the fee, interpreted the work of teachers as altruistic and generous and non-binding. Hence, their attitude had a moral implication, and they were aware that they should have not taken advantage of the teachers’ patience.
The introduction of a penalty instead removed any sentiment of guilt or shame, as the delay was now treated mentally as a simple purchase of a commodity.
As a cohesive social group, in our conduct we rely on already agreed social norms, such as the one that “when help is offered for no compensation in a moment of need, accept it with restraint. When a service is offered for a price, buy as much of it as you find convenient”.
What is the mental heuristic that perceives the difference between a financial penalty and a tariff?
Individuals indubitably categorize monetary payments based on their moral implications: while pecuniary sanctions contemplate a moral displeasure, tariffs are simply perceived as prices, implying no moral verdict.
Since this difference is merely perceived in our minds, one might consider a fine as a tariff.
An individual might decide, for example, to park in a parking space reserved for the disabled because of its proximity to the office not being aware of the ethical significance of his/her action but simply considering the penalty as a high tariff.
Similarly, speeding tickets can be perceived as mere charges – just like a highway toll – that allow us to drive faster. A smart solution to this bias was proposed by the Finnish government, that decided to address this issue by setting up a proportional system for fines whose monetary value was calculated on the basis of the offender’s income. In such a way, even for Finns with the highest incomes, the incentive to consider the sanctions as tariffs was eliminated by the divergence between the monetary values of fines and the maximum willingness to pay for tariffs of the agents.
To conclude, the introduction of a market often corrupts the object of exchange, as certain social values are degraded when they can be bought and sold – as if, for example, donating blood freely and without compensation is considered a heroic act, whereas giving it for money is a symbol of profiteering. Even though the introduction of a fine is supposed to decrease undesired behaviors, under certain circumstances it might backfire heading to opposite outcomes when our brain misbehaves and perceive the doomed conduct as “lawful”. For this reason, more awareness regarding the moral limits of markets should be spread in our modern society to enable us to identify the areas where markets might bring a benefit and the ones where they should not belong.
Gneezy, U., Rustichini, A., 2000b. A fine is a price. J. Legal Stud. 29, 1–17.
Falk, A., Szech, N., 2013. Morals and markets. Science 340, 707–711.
Sandel Michael J. 2012. What Money Can’t Buy: The Moral Limits of Markets. Farrar, Straus and Giroux
Finland case: https://www.nbcnews.com/id/wbna4233383