by Eyal Pe’er and Yuval Feldman
One of the main challenges in interactions between regulators and regulatees, as well as between managers and employees or between companies and their customers, is whether mutual trust can be achieved, especially when options for monitoring are limited. Ample evidence on the prevalence of unethical behaviors, be they intentional or not, which exists in most societies in various contexts, has justified the hesitance to trust other people, especially when the consequences of breach of trust might be dire. At the same time, many governments and organizations that (justly) wish to reduce regulatory burden often ask citizens and businesses to state, in advance, that their reports are truthful or that they abide by the relevant rules and regulations (“honesty pledges”). However, while such pledges can indeed reduce unneeded procedures, they might also tempt some agents, aware of the reduced monitoring, to cheat in their reports. We study how ex-ante honesty pledges can be used as a behaviorally-based regulatory tool to enhance the likelihood that people who are entrusted with behaving in a certain way will do so, with as limited as possible regulatory burden. We find that, when done properly, adoption of such an approach is likely to reduce dishonesty, and we believe that could also increase mutual trust and carry other positive effects.