Deterrence through word of mouth

This paper studies the indirect deterrent effect of enforcement working through word of mouth. We use unique micro data on compliance with TV license fees that allow us to distinguish between households who have been subject to enforcement and those who have not. Exploiting local variation in field inspectors ’ efforts induced by snowfall, we find a strong response in compliance among households who had no interaction with inspectors. As we can exclude other channels linking the actual and the perceived level of enforcement, this finding establishes a significant deterrent effect mediated by word of mouth. JEL classification: K42