The Use and Misuse of Coordinated Punishments*

Abstract

Communication facilitates cooperation by ensuring that deviators are collectively punished. We explore how players might misuse communication to threaten one another, and we identify ways that organizations can deter misuse and restore cooperation. In our model, a principal plays trust games with a sequence of short-run agents who communicate with one another. An agent can shirk and then extort pay by threatening to report that the principal deviated. We show that these threats can completely undermine cooperation. Investigations of agents’ efforts, or dyadic relationships between the principal and each agent, can deter extortion and restore some cooperation. Investigations of the principal’s action, on the other hand, typically do not help. Our analysis suggests that collective punishments are vulnerable to misuse unless they are designed with an eye towards discouraging it.

Communication and Community Enforcement

“…The value of communication is thus tied to the need to use individualized rather than collective punishment, which in turn is necessitated by the presence of bad types (which are absent in the above papers). 9 Finally, a number of papers consider settings where the need to provide incentives for honest communication constrains community enforcement (Bowen, Kreps, and Skrzypacz 2013;Wolitzky 2015;Ali andMiller 2016, 2020;Barron and Guo 2021). While we of course also insist that communication is incentive compatible, theorem 3 shows that this constraint is ultimately not binding in our model.…”

Commitment and discretion in contracts: theory and evidence from retirement plans*

“…Our paper also relates to the work that explicitly incorporates bargaining into models of relational contracting. Researchers have considered private information about the principal's outside option (Halac, 2012) and about the interactions with short‐lived agents (Barron and Guo, 2021), uncertainty about parties' bargaining power (Halac, 2015), or how contract renegotiation can induce non‐stationarity (Watson et al, 2020). We instead analyze a model with symmetric information and stationary contracts, where incentive constraints restrict the set of agreements that the parties can implement ex post , which can help the principal when bargaining with the agent ex ante .…”

A dynamic theory of regulatory capture

“…Firstly, if experts could commit to messages before sending the report to the principal, the regulatory capture equilibrium could unravel. This is because the experts could blackmail the firm, fully extracting the firm's surplus under the threat of spreading information that the firm deviated, as formally shown in a different setting by Barron and Guo (2021), to which we refer the interested reader.…”

“…First, Troya-Martinez and Wren-Lewis ( 2018) study relational contracts between an agent and a supervisor where there is room for corruption, highlighting the differences with more standard principal-agent models. Second, Barron and Guo (2021) study the related issue of extortion in a model where a principal interacts with an infinite stream of agents. The agents' ability to commit to public messages enables agents to blackmail the principal and can fully destroy cooperation.…”