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Covenants before the swords: The limits to efficient cooperation in heterogeneous groups

Author

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  • Christian Koch
  • Nikos Nikiforakis
  • Charles N. Noussair

Abstract

When agents derive heterogeneous benefits from cooperation, a tension often arises between efficiency and equality that can impede their ability to cooperate efficiently. We design a lab experiment, in which we investigate the efficacy of communication and punishment, separately and jointly, to promote cooperation in such an environment. Our results reveal that communication allows most groups to establish covenants, i.e., agreements about the profile of individual contributions, while the threat of punishment (the 'sword') discourages deviations from the covenants. Most covenants, however, reflect a concern for equality. As a result, cooperation levels and earnings fall substantially below the maximum possible. The timing of communication is also critical: covenants reduce the use of sanctions dramatically when communication precedes punishment opportunities but when punishment precedes communication opportunities, a history of sanctioning emerges which reduces the probability that groups establish covenants subsequently. Our findings illustrate not only the benefits of early communication, but also some limits to self-governance in heterogeneous groups.

Suggested Citation

  • Christian Koch & Nikos Nikiforakis & Charles N. Noussair, 2020. "Covenants before the swords: The limits to efficient cooperation in heterogeneous groups," Experimental Economics Center Working Paper Series 2020-09, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University.
    • Handle: RePEc:exc:wpaper:2020-09
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    File URL: http://excen.gsu.edu/workingpapers/GSU_EXCEN_WP_2020-09.pdf
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    Cited by:

    1. is not listed on IDEAS
    2. Baranski, Andrzej & Haas, Nicholas, 2023. "The timing of communication and retaliation in bargaining: An experimental study," Journal of Economic Psychology, Elsevier, vol. 96(C).
    3. Kloosterman, Andrew & Mago, Shakun, 2023. "The infinitely repeated volunteer's dilemma: An experimental study," Games and Economic Behavior, Elsevier, vol. 142(C), pages 812-832.
    4. Boulu-Reshef, Béatrice & Schulhofer-Wohl, Jonah, 2022. "The impact of distance on parochial altruism: An experimental investigation," European Journal of Political Economy, Elsevier, vol. 75(C).
    5. Nikiforakis, Nikos & Reuben, Ernesto & Stüber, Robert, 2024. "Normative conflict and the gender gap in cooperation," Economics Letters, Elsevier, vol. 238(C).
    6. repec:nad:wpaper:20220080 is not listed on IDEAS
    7. Yeo, Jonathan & Zhuo, Shi, 2024. "The usage of apologies and group cooperation," Journal of Economic Psychology, Elsevier, vol. 104(C).
    8. Angelsen, Arild & Naime, Julia, 2024. "The mixed impacts of peer punishments on common-pool resources: Multi-country experimental evidence," World Development, Elsevier, vol. 181(C).

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    Keywords

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    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions

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