Fraud Deterrence Institutions Reduce Intrinsic Honesty

Abstract

The impact of deterrence institutions beyond their immediate scope of application is unknown. Using a quasi-experiment with naturally occurring variation in inspections, we found evidence of spillover effects across contexts. We identified fraudsters and non-fraudsters on public transport who were or not exposed to ticket inspections. We measured the intrinsic honesty of the same persons in a new context where they could misappropriate money. Instead of having an educative effect across contexts, the exposure to deterrence practices increased unethical behaviour of fraudsters but also, strikingly, of non-fraudsters. Learning about the prevailing norm is the likely channel of this spillover effect.