A disincentive is a something that persuades parties not to engage in certain conduct. Laws often create intentional and unintentional disincentives through criminal penalties, civil liability, and tax provisions.
For example, the possibility of liability for securities fraud under the Securities Exchange Act of 1934 is a disincentive to prevent corporations from making materially misleading statements to the public.
Frequently, the creation of an incentive simultaneously creates a disincentive. For example, laws which provide legal immunity to informants with inside knowledge of illegal conduct creates both an incentive for individuals participating in illegal conduct to reveal secrets to authorities and a disincentive for parties to collaborate with others in illegal activity.
[Last updated in September of 2022 by the Wex Definitions Team]