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Nonmonetary Sanctions and Rewards in an Experimental Coordination Game

23 Pages Posted: 28 Apr 2008  

Subhasish Dugar

University of Calgary

Abstract

A growing body of experimental research documents that nonmonetary sanctions and rewards may be important instruments for enforcing efficient behavior. This study contributes to this literature by reporting results from a laboratory experiment. The experiment is designed to test whether nonmonetary sanctions or rewards alone can yield the optimal level of efficiency in a game with Pareto-ranked equilibria. Performance based disapproval and approval ratings, assigned by group members, are used as proxies for nonmonetary sanction and reward, respectively. Although these ratings are costless and payoff neutral, results show that expression of disapproval facilitates coordination on the most efficient equilibrium. In contrast, statement of approval induces subjects to converge towards the most inefficient outcome. We conclude that induced approval and disapproval ratings have asymmetric behavioral effects on coordination.

Keywords: Coordination games, nonmonetary sanction, reward, experiment

JEL Classification: C70, A13, C92

Suggested Citation

Dugar, Subhasish, Nonmonetary Sanctions and Rewards in an Experimental Coordination Game. Available at SSRN: https://ssrn.com/abstract=897100 or http://dx.doi.org/10.2139/ssrn.897100

Subhasish Dugar (Contact Author)

University of Calgary ( email )

2500 University Drive, NW
Calgary, Alberta T2N 1N4
Canada

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