Collective punishment promotes resource conservation if it is not enforced

Managing extraction of forest resources is crucial for the stability of local eco-systems. The excessive extraction of forests by local communities has contributed to their rapid decline. Punishment has been suggested as a solution to this problem. However, evidence from common pool resource (CPR) experiments indicates that peer punishment generates high levels of anti-social punishment and retaliation, which undermines its positive impact on resource conservation. It has been shown that collective punishment solves these problems in public good games, but so far it has been ignored in the CPR studies. To fill this gap, we present the results from the CPR experiment with collective punishment. In the pool punishment (1OP) treatment, group members first decide on whether to pay the tax so as to establish a sanctioning institution. If the institution has been established, they vote on who to punish for overharvesting. In the second-order punishment (2OP) treatment, an additional penalty is imposed on tax evaders. We find that the sanctioning institution persists only in the presence of penalties for tax evasion. Surprisingly, their presence increases the probability of resource exhaustion. In particular, in the 2OP treatment, subjects extract more resources compared to the 1OP treatment to compensate for the loss of payoffs spent on taxes. In turn, pool punishment is successful in promoting resource conservation, but only in some groups. The key factor that determines why some groups prevent resource exhaustion, while others fail to do so, concerns how group members react to unfair punishment. In successful groups, penalties imposed on subjects, who extracted the least resources in the group, make them reduce extraction. Such penalties have the opposite effect in groups that exhausted resources.