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Acknowledgements: We thank two anonymous referees and the editor for their suggestions. We

By Martin Sefton, James Walker, Also Thank Jeff Carpenter, Juan-camilo Cardenas, Rachel Croson, Robyn Dawes, Gerhard Glomm, Simon Gächter, Axel Ockenfels and Louis Putterman

Abstract

A growing number of field and experimental studies in social dilemma settings focus on the institutional arrangements by which individuals are able to solve collective action problems. Important in this research is the role of reciprocity and institutions that facilitate cooperation via opportunities for monitoring, sanctioning, and rewarding others. This study contrasts sanction and reward institutions in the context of a public goods experiment. Sanctions represent a net loss, a cost to both the participant imposing the sanction and the individual receiving the sanction. Rewards represent a zero sum transfer from participants giving rewards to those receiving rewards. These institutions are compared in regard to how, and to what extent, decision makers use the sanction and reward opportunities, as well as their impact on overall levels of cooperation and economic efficiency. (JEL C92) The Effect of Rewards and Sanctions in Provision of Public Goods The experimental literature on voluntary public goods provision shows that groups attain better outcomes than implied by economic models based on individuals maximizing own-monetary earnings. At the same time, however, groups uniformly fail to achieve optimal outcomes, suggesting that incentives to free ride are important. Moreover, when the decision situation is repeated, the group outcome often deteriorates with repetition, suggesting that, in many settings, a groups ’ ability to overcome free rider incentives may be transitory (see for example Andreoni and Miller, 1993, Isaac, Walker, and Williams

Year: 2002
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