Intermediate Microeconomics and Its Application 12th Edition by Walter Nicholson,Christopher Snyder

Exercise 37

Late for Daycare Pickup
People seem to behave differently in market transactions as opposed to personal dealings. When the Ultimatum Game is run in the lab with the usual framing, as we have seen, people exhibit a preference for fairness, offering even divisions of the pot of money and rejecting low offers. Dressing the exact same game up as a market transaction between buyers and sellers, experimental behavior turned out to exhibit much less fairness, with lower offers being made and accepted.1 A unique field experiment sheds more light on the effect of framing transactions as either commercial or personal.
Late Fines
The experiment involved daycare centers.2 A perennial problem at daycare centers is that an absent-minded or overworked parent can sometimes show up late to pick up his or her child at the end of the day. Having to keep the center open late is expensive for the center because it must pay its workers overtime and may be burdensome for the workers.
To study the effect of monetary incentives on this lateness problem, researchers conducted an experiment in which they approached a number of daycare centers within the same city. They randomly selected a sample of the centers to impose a monetary fine (amounting to about $5 for being 10 or more minutes late). The effect of the fines was surprising. Instead of reducing the lateness problem, the number of parents who showed up late doubled.
One explanation is that, prior to the fine being imposed, parents put considerable weight on the well-being of the center and the workers and tried very hard to show up on time. When a fine was imposed, the transaction stopped being personal and became commercial. Parents just compared the small, $5 cost with the benefit of staying a bit later at work and often found it worthwhile to be late.
Persistence
After allowing parents time to adjust to the fine, the researchers introduced another twist into the experiment: they went back to the status quo by removing the fines at all the centers. Removing the fines had no effect. Centers that had fines continued to have twice as many late parents as centers that never had a fine. Apparently, a temporary fine was enough to adjust parents' attitudes toward the center and its workers, and this attitude persisted regardless of the level of the actual fine.
Don't Mix Business and Pleasure
The daycare experiment suggests why people may be very reluctant to introduce money into personal relationships. People tend to "lend" flour and eggs to neighbors who run out and also perform other favors without any cash changing hands. Wouldn't it be more efficient just to pay for these things rather than keeping track of who owes what favors to whom? At work, colleagues help each other out all the time without exchanging money for it, and the same often happens within the family. It might be puzzling at first to a student of economics who has learned about all the advantages of the market that so much activity is effectively placed outside of the market by removing consideration of money and prices. The results from the field experiment suggest that this may be a way to encourage people to act according to their interpersonal values.
Society seems to find certain transactions acceptable when done on a voluntary basis, but repugnant when money is involved. Sex provides one example: most states continue to enforce laws against prostitution while striking down laws against adultery. Human organs provide another: paying for kidneys might increase supply and save the lives of some of those waiting for a transplant, the idea of an kidney or other organ market seems too distasteful for policymakers to contemplate.3
What would happen to the number of late pickups if the fine were increased from $5 to $6? What if it were increased to $50 or even $500? How might the graph look if average number of late pickups (on the vertical axis) were plotted against the level of the late fine (on the horizontal axis).