Punishing Free-Riders: How Group Size Affects Mutual Monitoring and the Provision of Public Goods

Abstract

Because costly punishment is not credible, subgame perfection suggests that punishment willnot deter free riding, regardless of the size or structure of groups. However, experimentsshow that people will punish free riders, even at considerable cost. To examine theimplications of agents who punish, we simulate an environment populated with behavioralstrategies seen in the lab and use the simulation to develop hypotheses about why groupsize should matter when punishment is allowed. We test these hypotheses experimentallyand examine whether the effect of group size is purely due to the number of group membersor if information about other group members is what is important. We find that large groupscontribute at rates no lower than small groups because punishment does not fall appreciablyin large groups. However, hindrances to monitoring do reduce the provision of the publicgood.

Keywords: experiment, group size, punishment, public goods, simulation

JEL Classification: C72, C92, H41