How to Make Iranian Sanctions More Effective: Lessons From Behavioral Economics

By Hal Hershfield, Assistant Professor of Marketing, and Mira Rapp-Hooper

The international community is not Iran's parents, and nuclear proliferation is far more dangerous than a tardy preschool pick-up.

By Hal Hershfield, Assistant Professor of Marketing, and Mira Rapp-Hooper

Several days ago, with its currency in free-fall, Iran cited a recent International Monetary Fund prediction of 2013 economic growth as evidence that international sanctions against it were ineffective. When Barack Obama and Mitt Romney face off for the presidential debate on foreign policy tonight, we can expect that each candidate will be asked how he would deal with the Iranian nuclear program that these sanctions were meant to curb. Key to the candidates' positions will be the question of whether sanctions against Iran are "working," and whether these may still force Iran into accepting some sort of a negotiated settlement.

To evaluate Obama and Romney's Iran policies, viewers must understand what exactly it means for sanctions to "work." Economic coercion is a two-stage process. In the first stage, individual countries and international institutions implement measures designed to strangle the economy of a target country, including unilateral and multilateral sanctions. The second stage of the process occurs if and when the target of the sanctions changes its political behavior, and complies with the wishes of the international community.

Recent research in behavioral economics may help shed some light on why robust sanctions have not yet produced nuclear concessions from the regime. In a now classic paper, economists Uri Gneezy and Aldo Rustichini studied the role of economic punishments in a rather unlikely context: late pick-ups at Israeli preschools. Parents were expected to retrieve their children by 4 p.m., but some occasionally arrived late, forcing teachers to stay late as well. So, Gneezy and Rustichini examined whether the introduction of a fine would curb tardy behavior, and assessed a small penalty on late-comers at half of the preschools. Logically, one might expect that such a late fee would prompt parents to start showing up on time. But the exact opposite occurred: at the preschools where fines were levied, almost twice as many parents were tardy.

Read full article as published in The Huffington Post.