Democratic decisions establish stable authorities that overcome the paradox of second-order punishment

Abstract

Individuals usually punish free riders but refuse to sanction those who cooperate but do not punish. This missing second-order peer punishment is a fundamental problem for the stabilization of cooperation. To solve this problem, most societies today have implemented central authorities that punish free riders and tax evaders alike, such that second-order punishment is fully established. The emergence of such stable authorities from individual decisions, however, creates a new paradox: it seems absurd to expect individuals who do not engage in second-order punishment to strive for an authority that does. Herein, we provide a mathematical model and experimental results from a public goods game where subjects can choose between a community with and without second-order punishment in two different ways. When subjects can migrate continuously to either community, we identify a bias toward institutions that do not punish tax evaders. When subjects have to vote once for all rounds of the game and have to accept the decision of the majority, they prefer a society with second-order punishment. These findings uncover the existence of a democracy premium. The majority-voting rule allows subjects to commit themselves and to implement institutions that eventually lead to a higher welfare for all.evolution of cooperation | pool punishment | institution formation T he success of collective action and the maintenance of commonly shared infrastructure is often endangered by free riders, subjects who reap the benefits of public goods without contributing to them (1, 2). To mitigate the free riders' destructive potential, many communities install specialized authorities that monitor the subjects' behavior and sanction wrong-doers (3-7). Examples, such as modern courts and the police system, indicate that the maintenance of such institutions is costly. They also constitute a commonly shared infrastructure, which can be exploited just as the original public good that the institution was designed for to protect. Thus, a second-order dilemma arises.Second-order dilemmas appear in various forms and are considered as a serious obstacle to the evolution of cooperation (8-10). For example, in the absence of a policing authority, group members may take the job onto themselves, punishing others directly. There is overwhelming evidence that subjects are willing to sanction free riders at a cost to themselves (11-14), although individuals typically refuse to exert second-order punishment (15). However, peer punishment can have detrimental consequences on welfare, as the punishment costs may override the benefits of increased cooperation (16) and due to the problems of antisocial punishment (17) and retaliation (18,19). Peer punishment may pay in the long run, but only when interactions take place in small and stable groups (20). These restrictions may be the reason why modern states have abolished decentralized sanctioning (21).To explain the transition from decentralized peer punishment to institutional pool punishment (22), recent theoretic...

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