Imperfect Public Monitoring with Costly Punishment - An Experimental Study
24 Pages Posted: 14 Nov 2011
Date Written: November 13, 2011
This paper experimentally investigates the effects of a costly punishment option on cooperation and social welfare in long finitely repeated public good contribution games. In a perfect monitoring environment increasing the severity of the potential punishment monotonically increases both contributions and the average net payoffs of subjects. In a more realistic imperfect monitoring environment, we find a U-shaped relationship between the severity of punishment and average net payoffs. Access to a standard punishment technology in this setting significantly decreases net payoffs, even in the long run. Access to a very severe punishment technology leads to roughly the same payoffs as with no punishment option, as the benefits of increased cooperation offset the social costs of punishing.
Keywords: public good contribution experiments, imperfect monitoring, welfare implications of costly punishment
JEL Classification: C72, C92, H41
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