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In the long-run we are all dead: on the benefits of peer punishment in rich environments

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Abstract

We investigate whether peer punishment is an efficient mechanism for enforcing cooperation in an experiment with a long time horizon. Previous evidence suggests that the costs of peer punishment can be outweighed by the benefits of higher cooperation if (i) there is a sufficiently long time horizon and (ii) punishment cannot be avenged. However, in most instances in daily life, when individuals interact for an extended period of time, punishment can be retaliated. We use a design that imposes minimal restrictions on who can punish whom or when, and allows participants to employ a wide range of punishment strategies including retaliation of punishment. Similar to previous research, we find that, when punishment cannot be avenged, peer punishment leads to higher earnings relative to a baseline treatment without any punishment opportunities. However, in the more general setting, we find no evidence of group earnings increasing systematically or significantly over time relative to the baseline treatment. Our results raise questions under what conditions peer punishment can be an efficient mechanism for enforcing cooperation.

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Notes

  1. We decided to use a shorter time horizon than Gächter et al. (2008) as allowing for a rich set of punishment strategies can increase considerably the duration of the experiment. We chose to allow for 30 periods based on the evidence in Gächter et al. (2008), which indicates that 30 periods should suffice for the benefits of punishment to outweigh its costs.

  2. The two most important differences between our study and Nikiforakis and Engelmann (2011) are that (i) in our previous study we did not consider behavior in a treatment without punishment opportunities and thus could not address our present research question, and (ii) that we considered a shorter time horizon (10 periods) than we do here, which also prevented us from studying long-run effects of the availability of complex punishment strategies.

  3. The word “ feud” is typically used in the literature to refer to a situation in which two or more parties are involved in a sequence of retaliatory actions over an extended period of time, which sometimes lead to killings. This is one reason we chose to use Keynes’ famous quote in our title. Another reason we used Keynes’ quote is the recent discussion on the long-run benefits of peer punishment. We do acknowledge that, had Keynes been still alive, he may have felt that we have quoted him somewhat out of context. At the same time, we hope he would have found our title fitting; perhaps, even entertaining.

  4. In Nikiforakis and Engelmann (2011), one punishment point reduced the income of the target by 2 ECU. For the purpose of comparison, in this experiment we chose to use the same punishment effectiveness as Gächter et al. (2008) instead.

  5. Note that player \(i\) with \(\pi _{i}^{s-1}=0\) can be punished although he cannot punish. This ensures that a player cannot immunize himself against retaliation by spending all his income on punishing others.

  6. See Balafoutas and Nikiforakis (2012) for evidence from a natural field experiment that the fear of counter-punishment is an important deterrent to punishing norm violations in one-shot interactions.

  7. All Spearman tests reported are based on group-level averages per period.

  8. We do not model period as a linear effect as this assumption is clearly refuted by the evidence seen in Fig. 1.

  9. The fact that the standard errors for all main and interaction effects are identical may appear surprising at first. The reason is that the respective independent variables are sets of dummies that are mutually exclusive. Hence the error with which each of them is estimated is the same.

  10. Balafoutas et al. (2014) present evidence that participants do not anticipate that the threat of counter-punishment will lead to an 80 % reduction in subjects’ willingness to punish selfish behavior in their experiment. As a result, the extent of selfish behavior is the same as in a treatment without counter-punishment opportunities.

  11. The higher show-up fee we gave subjects in treatment RP to prevent losses in the case of feuds could potentially lead to a higher demand for punishment (e.g., if punishment is a normal good). However, the absence of a significant difference in the punishment activity between SP and RP suggests that this is not the case. Moreover, we note that the crucial difference between SP and RP lies in the time trend and it is hard to conceive how this could be driven by the difference in show-up fees.

  12. Figure 3 graphs the total number of points assigned across stages in the Rich Punishment treatment as well as the number of points assigned in the first punishment stage of this treatment. The reason is that first-stage punishment is typically aimed towards below-average contributors, while higher-order punishment is often used to retaliate punishment (Nikiforakis and Engelmann 2011). Therefore, when comparing the deterrent effect of punishment, first-stage punishment in RP may serve better as comparison with SP than total punishment in RP.

    Fig. 3
    figure 3

    Evolution of average number of punishment points assigned across periods

    Table 5 Average number of punishment points assigned across treatments (group-level standard deviations are in parentheses)
  13. To keep our paper focused on our main research question, we refrain from presenting a more detailed analysis of punishment behavior here. However, we note, that the punishment patterns we observe in the present experiment are similar to those reported in Nikiforakis and Engelmann (2011). For example, free riders are significantly less punished in the first stage of punishment in the RP treatment than in the SP treatment. We also note that Result 1 is supported if instead of average group earnings we use median group earnings thus attenuating the impact of feuds on earnings.

  14. In one group, in particular, all group members contributed 20 by period 18. Then, in period 19, one of them decided to contribute 9, while everyone else continued contributing 20. Seeing this, a group member decided to assign 27 points to the defector who, in the following period, and although all group members now contributed 20, counter-punished with 10 points. The feud between the two continued until period 24 with very high levels of punishment and full cooperation.

  15. For some recent related experimental studies on the topic see Andreoni and Gee (2012), Baldassarri and Grossman (2011), Tan and Xiao (2012).

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Acknowledgments

Financial support from the Faculty of Business and Economics at the University of Melbourne is gratefully acknowledged. We would like to thank Jun Wey Lee for research assistance and two anonymous referees, as well as participants at the Workshop “Experiments on Conflicts, Inequality and Incentives” at Université de Rennes 1, at the Econometric Society European Meeting in Göteborg and the annual meeting of the Verein für Socialpolitik in Düsseldorf for helpful comments. Dirk Engelmann is a Research Associate at CERGE-EI, Prague, the Czech Republic.

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Engelmann, D., Nikiforakis, N. In the long-run we are all dead: on the benefits of peer punishment in rich environments. Soc Choice Welf 45, 561–577 (2015). https://doi.org/10.1007/s00355-015-0884-5

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  • DOI: https://doi.org/10.1007/s00355-015-0884-5

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