The Compliance Consequences of Fault Assignment and Sanction Strength in Sanctions

Abstract

Regulators rely heavily on “no-fault” settlements in their enforcement, where targets avoid costly litigation by accepting sanctions without admitting or denying fault. Considerable public debate surrounds the issue, but prior research has typically focused on financial dimensions of sanctions such as the magnitude of fines. I conduct an economic experiment where individuals face a costly compliance choice in the presence of sanctions that may either be greater than or less than the benefits of violating and may also require admission of fault. I observe that compliance quality is greater when sanctions assign fault. I also observe that, relative to strong sanctions, the frequency of compliance decreases under weak no-fault sanctions but does not decrease under weak fault sanctions. Lastly, I observe that non-decision-making participants struggle with the task of anticipating compliance, believing that compliance quality will increase in sanction strength but not fault although the opposite is true. Data Availability: Data are available on request from the author.