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The Use and Misuse of Coordinated Punishments

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  • Daniel Barron
  • Yingni Guo

Abstract

Communication facilitates cooperation by ensuring that deviators are collectively punished. We explore how players might misuse communication to threaten one another, and we identify ways that organizations can deter misuse and restore cooperation. In our model, a principal plays trust games with a sequence of short-run agents who communicate with each other. An agent can shirk and then extort pay by threatening to report that the principal deviated. We show that these threats can completely undermine cooperation. Investigations of agents’ efforts, or dyadic relationships between the principal and each agent, can deter extortion and restore some cooperation. Investigations of the principal’s action, on the other hand, typically do not help. Our analysis suggests that collective punishments are vulnerable to misuse unless they are designed with an eye toward discouraging it.

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  • Daniel Barron & Yingni Guo, 2021. "The Use and Misuse of Coordinated Punishments," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 136(1), pages 471-504.
    • Handle: RePEc:oup:qjecon:v:136:y:2021:i:1:p:471-504.
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    File URL: http://hdl.handle.net/10.1093/qje/qjaa035
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    Cited by:

    1. Jin‐Hyuk Kim & Nick Vikander, 2023. "Commitment and discretion in contracts: theory and evidence from retirement plans," Scandinavian Journal of Economics, Wiley Blackwell, vol. 125(2), pages 461-488, April.
    2. Alessandro De Chiara & Marco A. Schwarz, 2020. "A Dynamic Theory of Regulatory Capture," Working Papers 2020-12, Faculty of Economics and Statistics, Universität Innsbruck.

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