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The Signalling Power of Sanctions in Collective Action Problems

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  • Joel van der Weele

Abstract

We present a model of collective action in a heterogenous population of egoists and conditional cooperators. Each player is uncertain about the cooperative inclinations of the other player. A government or principal who has information about the distribution of types may introduce sanctions for defection. We study the impact of such sanctions through the e¤ect on the beliefs of the players about the distribution of types they are facing. It is shown that in equilibrium sanctions can crowd out trust between agents by sending a signal that there are many egoists around. This can lead the government to set low sanctions to induce trust and 'crowd in' cooperation. In cases where conditional cooperation is an important factor in collective action, as is the case in tax compliance, the model provides a rationale for the low observed sanctions in the real world.

Suggested Citation

  • Joel van der Weele, 2007. "The Signalling Power of Sanctions in Collective Action Problems," Economics Working Papers ECO2007/10, European University Institute.
    • Handle: RePEc:eui:euiwps:eco2007/10
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    More about this item

    Keywords

    Collective action; trust; incentives; crowding out; conditional cooperation;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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