The Signalling Power of Sanctions in Collective Action Problems

We present a model of collective action in a heterogenous population of egoists and conditional cooperators. Each player is uncertain about the cooperative inclinations of the other player. A government or principal who has information about the distribution of types may introduce sanctions for defection. We study the impact of such sanctions through the e¤ect on the beliefs of the players about the distribution of types they are facing. It is shown that in equilibrium sanctions can crowd out trust between agents by sending a signal that there are many egoists around. This can lead the government to set low sanctions to induce trust and 'crowd in' cooperation. In cases where conditional cooperation is an important factor in collective action, as is the case in tax compliance, the model provides a rationale for the low observed sanctions in the real world.Collective action, trust, incentives, crowding out, conditional cooperation

On Sanctions and Signals: How formal and informal mechanisms produce compliance.

Why people comply with rules, why they contribute to public goods and why they behave prosocially in general is a fundamental question of social science. In the tradition of Gary Becker and the chicago school, economists have traditionally considered punishment by the authorities as the main or sole reason why people would comply with the law and contribute to public goods. In this thesis I argue that this model is importantly incomplete and leads to lopsided or even mistaken policy advice. I stress the importance of social interactions between agents and apply game theoric examples to show how the standard model can be enriched. In the second chapter, I survey the empirical literature, both experimental and econometric, on the deterrence literature. From this review I conclude that the literature does not demonstrate a robust effect of deterrence. I then review theoretical work in which sanctions interact with social norms or long-term processes of preferences formation. In such models deterrence often does not have the straightforward effect that it has in standard theory. The chapter concludes with an example: a model of crime in neighborhoods where signaling is important. I show that in this case, the threat of police violence may be counterproductive on its own, but can be useful in combination with other, softer approaches. The third chapter departs from the fact that the population of contributors to a public good consists of a mix of reciprocal and selfish agents, an assumption borne out by much experimental evidence. I then show that if there exists a government or authority that is superiorly informed about the fractions of these types in the population, a policy of harsh sanctions may convey that there are a lot of bad types in equilibrium. As a result, equilibrium sanctions will generally be lower then they would be under symmetric information. In the fourth chapter, I report the results of a laboratory experiment aimed to test if sanctions can indeed have a signaling effect. In accordance with the signaling hypothesis I find that `endogenous sanctions' tend to make people more pessimistic, especially those who were optimistic at the start of the game. In the last chapter, I model an alternative approach to compliance. I consider the widely reported fact that the possibility to participate in a decision making procedure tends to raise voluntary compliance with authorities, even if the actual decision is not beneficial to the agent. I show that the introduction of a decision making procedure in which an agent can change a decision of the policymaker with some probability, can be a signal of altruistic motives of the policy maker towards the agent. This means that even if she does not change the outcome of the decision in practice, the agent trusts the policy maker to treat her well in the future, and will engage in more voluntary compliance. In the Epilogue I add some remarks on the potential of participatory decision making as an alternative policy tool to the standard economic command and control framework.Human capital; Public goods; Compliance;

Sanctions that Signal: an Experiment.

Sanctions are a means to provide incentives towards more pro-social behavior. Yet their implementation can be a signal that past behavior was undesirable. We investigate experimentally the importance of the informational content of the choice to sanction. We place this in a context of a coordination game to focus attention on beliefs and information and less on intrinsic or pro-social motivations. We compare the eect of sanctions that are introduced exogenously by the experimenter to that of sanctions which have been actively chosen by a subject who takes the role of a fictitious policy maker with superior information about the previous eort of the other players. We nd that cooperative subjects perceive actively chosen sanctions as a negative signal which eliminates for them the incentive eect of sanctions.

Deception and Self-Deception

Why are people so often overconfident? We conduct an experiment to test the hypothesis that people become overconfident to more effectively persuade or deceive others. After performing a cognitively challenging task, half of our subjects are informed that they can earn money by convincing others of their superior performance. The privately elicited beliefs of informed subjects are significantly more confident than the beliefs of subjects in the control condition. By generating exogenous variation in confidence with a noisy performance signal, we are also able to show that higher confidence indeed makes subjects more persuasive in the subsequent face-to-face interactions

Self-serving Bias in Redistribution Choices: Accounting for Beliefs and Norms

People with higher-incomes tend to support less redistribution than lower-income people. This has been attributed not only to self-interest, but also to psychological mechanisms including differing beliefs about the hard work or luck underlying inequality, differing fairness views, and differing perceptions of social norms. In this study, we directly measure each of these mechanisms and compare their mediating roles in the relationship between status and redistribution. In our experiment, participants complete real-effort tasks and then are randomly assigned a high or low pay rate per correct answer to exogenously induce (dis)advantaged status. Participants are then paired and those assigned the role of dictator decide how to divide their joint earnings. We find that advantaged dictators keep more for themselves than disadvantaged dictators and report different fairness views and beliefs about task performance, but not different beliefs about social norms. Further, only fairness views play a significant mediating role between status and allocation differences, suggesting this is the primary mechanism underlying self-serving differences in support for redistribution

Deception and Self-Deception

Why are people so often overconfident? We conduct an experiment to test the hypothesis that people become overconfident to more effectively persuade or deceive others. After performing a cognitively challenging task, half of our subjects are informed that they can earn money by convincing others of their superior performance. The privately elicited beliefs of informed subjects are significantly more confident than the beliefs of subjects in the control condition. By generating exogenous variation in confidence with a noisy performance signal, we are also able to show that higher confidence indeed makes subjects more persuasive in the subsequent face-to-face interactions

On Sanctions and Signals: How formal and informal mechanisms produce compliance

Defense Date: 21/09/2009Examining Board: Professor Frederick van der Ploeg, University of Oxford, Supervisor Professor Fernando Vega-Redondo, EUI Professor Steffen Huck, University College London Professor Tore Ellingsen, Stockholm School of EconomicsWhy people comply with rules, why they contribute to public goods and why they behave prosocially in general is a fundamental question of social science. In the tradition of Gary Becker and the chicago school, economists have traditionally considered punishment by the authorities as the main or sole reason why people would comply with the law and contribute to public goods. In this thesis I argue that this model is importantly incomplete and leads to lopsided or even mistaken policy advice. I stress the importance of social interactions between agents and apply game theoric examples to show how the standard model can be enriched. In the second chapter, I survey the empirical literature, both experimental and econometric, on the deterrence literature. From this review I conclude that the literature does not demonstrate a robust effect of deterrence. I then review theoretical work in which sanctions interact with social norms or long-term processes of preferences formation. In such models deterrence often does not have the straightforward effect that it has in standard theory. The chapter concludes with an example: a model of crime in neighborhoods where signaling is important. I show that in this case, the threat of police violence may be counterproductive on its own, but can be useful in combination with other, softer approaches. The third chapter departs from the fact that the population of contributors to a public good consists of a mix of reciprocal and selfish agents, an assumption borne out by much experimental evidence. I then show that if there exists a government or authority that is superiorly informed about the fractions of these types in the population, a policy of harsh sanctions may convey that there are a lot of bad types in equilibrium. As a result, equilibrium sanctions will generally be lower then they would be under symmetric information. In the fourth chapter, I report the results of a laboratory experiment aimed to test if sanctions can indeed have a signaling effect. In accordance with the signaling hypothesis I find that `endogenous sanctions' tend to make people more pessimistic, especially those who were optimistic at the start of the game. In the last chapter, I model an alternative approach to compliance. I consider the widely reported fact that the possibility to participate in a decision making procedure tends to raise voluntary compliance with authorities, even if the actual decision is not beneficial to the agent. I show that the introduction of a decision making procedure in which an agent can change a decision of the policymaker with some probability, can be a signal of altruistic motives of the policy maker towards the agent. This means that even if she does not change the outcome of the decision in practice, the agent trusts the policy maker to treat her well in the future, and will engage in more voluntary compliance. In the Epilogue I add some remarks on the potential of participatory decision making as an alternative policy tool to the standard economic command and control framework

The Signalling Power of Sanctions in Collective Action Problems

We present a model of collective action in a heterogenous population of egoists and conditional cooperators. Each player is uncertain about the cooperative inclinations of the other player. A government or principal who has information about the distribution of types may introduce sanctions for defection. We study the impact of such sanctions through the e¤ect on the beliefs of the players about the distribution of types they are facing. It is shown that in equilibrium sanctions can crowd out trust between agents by sending a signal that there are many egoists around. This can lead the government to set low sanctions to induce trust and 'crowd in' cooperation. In cases where conditional cooperation is an important factor in collective action, as is the case in tax compliance, the model provides a rationale for the low observed sanctions in the real world

Deception and Self-deception

Why are people so often overconfident? We conduct experiments to test the hypothesis that people self-deceive into higher confidence in order to more effectively persuade or deceive others. After performing a cognitively challenging task, half of our subjects are informed that they can earn money if, during a short face-to-face interaction, they convince others of their superior performance. We find that the privately elicited beliefs of the group that was informed of the interaction exhibit significantly more overconfidence than the beliefs of the control group. Generating random variation in confidence with a noisy performance signal, we also show that higher confidence is causal in making subjects more persuasive in the interactions. Our findings put the phenomenon of overconfidence in a new light. Rather than merely being a cognitive deficiency or a source of affective benefits, overconfidence may represent an optimal response to an environment in which social influence and persuasion are often crucial

Denial and alarmism in collective action problems

Förster M, van der Weele JJ. Denial and alarmism in collective action problems. Tinbergen Institute Discussion Paper. Vol TI 2018-019/I. Amsterdam ; Rotterdam: Tinbergen Institute; 2018.We analyze communication about the social returns to investment in a public good. We model two agents who have private information about these returns as well as their own taste for cooperation, or social preferences. Before deciding to contribute or not, each agent submits an unverifiable report about the returns to the other agent. We show that even if the public good benefits both agents, there are incentives to misrepresent information. First, others' willingness to cooperate generates an incentive for "alarmism", the exaggeration of social returns in order to opportunistically induce more investment. Second, if people also want to be perceived as cooperators, a "justification motive" arises for low contributors. As a result, equilibrium communication features "denial" about the returns, depressing contributions. We illustrate the model in the context of institutional inertia and the climate change debate