Economics Dictionary of ArgumentsHome
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| Multiplication Effect: The Multiplication Effect, also known as the multiplier effect, in economics refers to the phenomenon where an increase in spending produces an increase in national income and consumption greater than the initial amount spent. This effect occurs because spending by one entity increases the incomes of others, who then spend more themselves, further stimulating the economy. See also Efficiency, Economic growth._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Dictionary of Arguments. | |||
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Giuseppe Dari-Mattiacci on Multiplication Effect - Dictionary of Arguments
Parisi I 451 Multiplication Effect/carrots and sticks/punishment/reward/Dari-Mattiacci/De Geest: for all agents taken as a group, it might be better to violate the rule and allow one of them to be punished, yet no agent has an individual incentive to sacrifice himself. A necessary condition for this multiplication effect to hold is that all agents know the order in which the ruler will monitor and penalize them.(1) Parisi I 452 Two general principles: First, the multiplication effect of sticks is stronger (giving a stronger advantage to sticks over carrots) as n grows, since the condition becomes more difficult to satisfy. Second, this advantage also grows if the number of compliers increases. In normal circumstances, compliers outnumber violators and hence the condition becomes n < 1, so that carrots always yield a more stringent budget constraint for the ruler than sticks do. Multiplication effect: The reason why only sticks have a multiplication effect is as follows. Carrots are applied upon compliance, sticks upon violation. If the agent complies, the carrot is used up but the stick is not. Although a stick can be applied only once, the threat to apply the stick can be repeated several times. Note that the multiplication effect is another qualification of the incentive equivalence result: a $100 stick can, under some conditions, have an incentive effect of more than $100; a $100 carrot, by contrast, can never have an incentive effect of more than $100. The upside of the multiplication effect is that it makes law enforcement more effective: it allows governing a country of 300 million citizens with relatively few prison cells—it is sufficient that there are some empty prison cells. The downside Parisi I 453 of the multiplication effect is that sticks carry an inherent risk of abuse, which is absent in carrots. 1. Dari-Mattiacci, Giuseppe and Gerrit De Geest (2010). “Carrots, Sticks, and the Multiplication Effect.” Journal of Law, Economics, and Organization 26: 365–384. Giuseppe Dari-Mattiacci and Gerrit de Geest. “Carrots vs. Sticks”. In: Parisi, Francesco (ed) (2017). The Oxford Handbook of Law and Economics. Vol 1: Methodology and Concepts. NY: Oxford University._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. "Vs" indicates differences in content, not necessarily the chronological progression of a controversy. If a German edition is specified, the page numbers refer to this edition. |
Dari-Mattiacci, Giuseppe Parisi I Francesco Parisi (Ed) The Oxford Handbook of Law and Economics: Volume 1: Methodology and Concepts New York 2017 |
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