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The Carrot or the Stick: Rewards, Punishments, and Cooperation

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  • James Andreoni
  • William Harbaugh
  • Lise Vesterlund

Abstract

We examine rewards and punishments in a simple proposer-responder game. The proposer first makes an offer to split a fixed-sized pie. According to the 2×2 design, the responder is or is not given a costly option of increasing or decreasing the proposer's payoff. We find substantial demands for both punishments and rewards. While rewards alone have little influence on cooperation, punishments have some. When the two are combined the effect on cooperation is dramatic, suggesting that rewards and punishments are complements in producing cooperation. Providing new insights to what motivates these demands is the surprising finding that the demands for rewards depend on the availability of punishments.
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Suggested Citation

  • James Andreoni & William Harbaugh & Lise Vesterlund, 2003. "The Carrot or the Stick: Rewards, Punishments, and Cooperation," American Economic Review, American Economic Association, vol. 93(3), pages 893-902, June.
  • Handle: RePEc:aea:aecrev:v:93:y:2003:i:3:p:893-902
    Note: DOI: 10.1257/000282803322157142
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    References listed on IDEAS

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    JEL classification:

    • D0 - Microeconomics - - General

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