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This paper provides a comparative statics analysis of punishment in public-good experiments. We vary systematically the effectiveness of punishment, that is, the factor by which punishment reduces the punished player's income, and we find that contributions to the public good increase monotonically in effectiveness. High effectiveness leads to near complete contribution rates and welfare improvements. Below a certain threshold, however, punishment cannot prevent the decay of cooperation found in the public-good game without punishment.In these cases, the possibility to punish may even worsen welfare. Finally, we show that punishment is a normal and inferior good.

This paper investigates the relationship between relative earnings and giving in a twostage, real-effort experiment. In the first stage, four players compete in a tournament that determines their earnings. In the second stage, they decide whether they wish to transfer part of their earnings to one or more of their group members. Our main finding is that those who are ranked first are significantly less likely to give than those who are ranked second. This non-monotonic relationship between earnings and giving behavior disappears if individual earnings are randomly determined or if individuals learn about the second (transfer) stage after they earn their income. These results suggest that the non-monotonic relationship detected may be driven by differences in individuals' expectations about others' behavior in the second stage, which are correlated with their own willingness to give.Keywords: Relative income; Altruism; Real effort; Self-selection; Luck JEL Classification: C91; D3; D64; I3 Our main result is that when the ranking of the subjects is based purely on relative effort, subjects who rank first (and hence have the highest earnings) are significantly less likely to give to other group members than those ranked second. We 3 Theories of social preferences assume that individual utility is affected by a variety of factors, such as relative earnings (Bolton, 1991) or inequitable payoffs (Fehr and Schmidt, 1999; Bolton and Ockenfels, 2000). See Fehr and Schmidt (2006) for a survey.3 also find that the absolute amounts given do not vary with earnings. The observed nonmonotonic relationship between earnings and giving behavior goes against the intuition that subjects with higher earnings should be at least as likely to give as subjects with lower earnings.Evidence suggests that people are more likely to receive support when they have been negatively affected by luck (such as the victims of natural calamities) and that people who are positively affected by luck are more likely to help others (such as lottery winners). That is, individual giving behavior might be different when luck affects earnings (Eckel, Grossman and Milano, 2007). Thus, to test the robustness of our findings, the experiment included a treatment in which rankings and, hence, earnings could also be affected by luck in addition to relative effort. To implement this, a virtual coin is tossed separately for each individual after the first stage is completed.A tails outcome reduces one's output in the first stage by 30 percent and could in some cases cause a switch in rankings between two or more players.We find that individuals who are negatively affected by luck are as likely to receive a transfer as other subjects when we control for earnings and relative effort. However, conditional on a transfer occurring, unlucky subjects receive greater amounts. Most importantly, we find that, as in the treatment in which luck does not affect outcomes, the highest earners are significantly less likely to give than subjects ranked second, despite the...

Many interactions in modern human societies are among strangers. Explaining cooperation in such interactions is challenging. The two most prominent explanations critically depend on individuals' willingness to punish defectors: In models of direct punishment, individuals punish antisocial behavior at a personal cost, whereas in models of indirect reciprocity, they punish indirectly by withholding rewards. We investigate these competing explanations in a field experiment with real-life interactions among strangers. We find clear evidence of both direct and indirect punishment. Direct punishment is not rewarded by strangers and, in line with models of indirect reciprocity, is crowded out by indirect punishment opportunities. The existence of direct and indirect punishment in daily life indicates the importance of both means for understanding the evolution of cooperation.cooperation | field experiment | indirect reciprocity | punishment | social norms