Cooperation under Punishment: Imperfect Information Destroys it and Centralizing Punishment Does Not Help

Abstract

We run several experiments which allow us to compare cooperation under perfect and imperfect information and under a centralized and decentralized punishment regime. We find that (1) centralization by itself does not improve cooperation and welfare compared to an informal, peer-to-peer punishment regime and (2) centralized punishment is equally sensitive to noise as decentralized punishment, that is, it leads to significantly lower cooperation and welfare (total profits). Our results shed critical light on the widespread conjecture that the centralization of punishment institutions is welfare increasing in itself.

Democratic Punishment in Public Good Games with Perfect and Imperfect Observability

“…1 Hence even in the long run, contribution levels stay away from the socially efficient levels, and individuals keep on punishing each other, further decreasing each others' payoffs. Moreover, in a recent paper Fischer, Grechenig and Meier (2013) find that if monitoring is imperfect, centralizing punishment, in the form of delegating punishment rights to a particular individual, does not remedy the issues above, and cooperation levels remain low. 2 In this paper we find that democratic punishment, in the form of group members after each round of the contribution game deciding which members 1 In experiments on social dilemma games with imperfect observability and no direct punishment option available, Aoyagi and Fréchette (2009) and Fudenberg, Rand and Dreber (2012) find that players under noise are more forgiving than without noise.…”

The Absence of Policing and the Political Economy of Contribution and Defection

“…Another aspect is that peer and institutional punishment are sensitive to noise. 10 But additionally, to the possible noise between the punisher and the defector in peer punishment, institutional punishment can suffer from noise and information asymmetries between the principal (the citizens) and the agent (the politicians being the institutional punisher). 11 Monitoring of other actors' behavior is more difficult in larger groups 12 as transparency is likely to decrease.…”

When Does Transparency Backfire? Putting Jeremy Bentham's Theory of General Prevention to the Experimental Test

“…This uncertainty slightly reduces contributions when punishment is particularly strong. Uncertainty has a strong detrimental effect when it is more pronounced (Bornstein & Weisel ; Grechenig et al ; Fischer et al ), and when the admissibility of punishment is subject to group vote (Ambrus & Greiner ).…”