From disapproval to social exclusion: the endogenous formation of non-financial incentives for collectively beneficial behaviours

In analysing potential policy responses to improve outcomes in collective-action problems, economists often focus on financial disincentives to reduce the expected gains from free-riding and thereby promote within-group cooperation. In this study, we investigate the potential for groups to develop non-financial disincentives to free riding, thereby promoting convergence towards collectively beneficial actions. Using a within-subjects laboratory experiment, participants play two multi-period public-goods games sequentially: without and then with non-financial incentives activated by allowing for the endogenous formation of a social exclusion mechanism. This is operationalised by allowing participants, at a personal cost, to assign exclusion tickets to group members after observing their contributions: the member(s) having accumulated the most in their group gets excluded from a group activity not involving monetary payoffs nor linked to the main game. First, the threat of receiving exclusion tickets, then the threat of being excluded, and finally actually being excluded work as non-financial social disincentives to free ride. Results show that group members who contribute relatively less receive more exclusion tickets. By imposing expected social costs on relatively low contributors, exclusion or the threat of exclusion enables groups to operate with higher contribution levels, thereby reversing the collective decline in contributions observed in the Baseline public good game. Exclusion is experienced by individuals who consistently contribute less than other group members, and this experience amplifies the effectiveness of the subsequent exclusion threat. Willingness to incur personal costs to enhance the exclusion threat increases over time and it is shaped by more cooperative normative expectations. This effect is particularly pronounced among individuals who perceive norms as tight, especially when higher contributions become more dispersed. In the absence of financial disincentives, these patterns show how non-financial incentives, shaped by more cooperative normative expectations, can foster group coordination and higher public-good contributions.