Carrots and Sticks: New Evidence in Public Goods Games with Privileged Groups

Abstract

Standard public goods games often assign group members the same marginal per capita returns to public goods production, but in reality group members facing differential individual returns often must collaborate to produce a public good. This paper uses a laboratory experiment to investigate the comparative efficacy of punishment and reward in groups that contain a “privileged” player. In public goods settings, a privileged player is one who has higher incentives to contribute to the public good than other group members; punishment and reward are implemented via allowing every member to sanction other members at a cost. In such settings, will punishment or reward motivate higher contributions in privileged groups? I find that reward increases group contributions while punishment does not. Reward also significantly mitigates contribution decay over successive periods and improves social welfare. Many real-world groups are composed of groups with members who have varying degrees of interest in a common purpose. The present investigation of the efficacy of reward and punishment in groups with a privileged player can shed light on how to facilitate better cooperation and induce better outcomes in these real-world settings.