Deterrence by Imperfect Sanctions – A Public Good Experiment
Max Planck Institute for Research on Collective Goods; University of Bonn - Faculty of Law & Economics; Universität Osnabrück - Faculty of Law
MPI Collective Goods Preprint, No. 2013/9
Sanctions are often so weak that a money maximizing individual would not be deterred. In this paper I show that they may nonetheless serve a forward looking purpose if sufficiently many individuals are averse against advantageous inequity. Using the Fehr/Schmidt model (QJE 1999) I define three alternative channels: (a) identical preferences are common knowledge, but inequity is not pronounced enough to sustain cooperation; (b) heterogeneous preferences are common knowledge; (c) there is preference uncertainty. In a linear public good with punishment meted out by a disinterested participant, I test two implications of the model: (a) participants increase contributions in reaction to imperfect punishment; (b) imperfect punishment helps sustain cooperation if participants experience free-riding.
Number of Pages in PDF File: 36
Keywords: Deterrence, Public Good Experiment, Inequity Aversion, imperfect sanction, Fehr/Schmidt preferences, centralized punishement
JEL Classification: H41, D63, K42, C91, D03, K14, K13working papers series
Date posted: May 25, 2013
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