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When Do Punishment Institutions Work?

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Abstract

While peer punishment sometimes motivates increased cooperation, it sometimes reduces cooperation. We use a lab experiment to study why punishment sometimes fails. We begin with a gift exchange game with punishment as it has typically been implemented therein since punishment has often backfired in this game. We modify two features of punishment that could increase its efficacy: punishment's strength and its timing (whether the punisher publicly pre-commits to punishment or acts after the punishee). We replicate the result that peer punishment in gift exchange games can reduce cooperation, but show that this bad outcome disappears if punishment is more powerful. This does not seem primarily due to punishment's threat leading to spiteful behavior: we find little evidence of spite, and the same punishment does not perform better when it is chosen after the fact. We find two main reasons that punishment decreases cooperation: lower wages are offered (a stick is substituted for a carrot); and many punishers don't design punishment to properly incentivize high effort, particularly when punishment is weak in power. Punishment that is not publicly pre-committed is not effective in this game, even though this kind of punishment is similar to that used in public good games in the literature where punishment does seem to increase cooperation. The only punishment institution that increases cooperation is high-power punishment that is publicly pre-committed, which works through strong incentives rather than reciprocity. Finally, the existence of a punishment institution often decreases social surplus (when punishment-related losses are considered), although it may eventually increase social surplus if it is powerful and publicly pre-committed.

Suggested Citation

  • Patrick Aquino & Robert S. Gazzale & Sarah Jacobson, 2015. "When Do Punishment Institutions Work?," Department of Economics Working Papers 2015-15, Department of Economics, Williams College, revised Aug 2015.
  • Handle: RePEc:wil:wileco:2015-15
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    References listed on IDEAS

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    1. Carpenter, Jeffrey P., 2007. "The demand for punishment," Journal of Economic Behavior & Organization, Elsevier, vol. 62(4), pages 522-542, April.
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    5. Rigdon, Mary, 2009. "Trust and reciprocity in incentive contracting," Journal of Economic Behavior & Organization, Elsevier, vol. 70(1-2), pages 93-105, May.
    6. 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.
    7. Ernst Fehr & Simon Gachter & Georg Kirchsteiger, 1997. "Reciprocity as a Contract Enforcement Device: Experimental Evidence," Econometrica, Econometric Society, vol. 65(4), pages 833-860, July.
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    9. Ralph-C Bayer, 2014. "On the Credibility of Punishment in Repeated Social Dilemma Games," School of Economics Working Papers 2014-08, University of Adelaide, School of Economics.
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    More about this item

    Keywords

    punishment; cooperation; gift exchange; reciprocity;

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • J49 - Labor and Demographic Economics - - Particular Labor Markets - - - Other
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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