The Role of Reward in Cooperation-Enhancing and Welfare-Improving Under Imperfect information: Theory and Evidence

Although previous literature demonstrates that punishment is more efficient and stable than reward, in our daily life, numerous kinds of rewards permeate. One possible explanation for widely use of reward institution in practice is that it’s an efficient and satisfactory way to enhance cooperation and welfare in a social dilemma situation even the contribution is hardly evaluated accurately. Nevertheless, this explanation lacks support from empirical evidence. Our study aims to examine whether the institution with reward option is an efficient and satisfactory way to solve social dilemma problems under imperfect information conditions. We show that reward institutions sustain higher cooperation levels and let participants get more welfare under imperfect information conditions. Furthermore, we find most participants to have a tendency to favor reward institutions, even when the information is highly noisy. Our study sheds light on the superiority of reward institutions over punishment institutions in a realistic world.