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This paper provides evidence that free riders are heavily punished even if punishment is costly and does not provide any material benefits for the punisher. The more free riders negatively deviate from the group standard the more they are punished. As a consequence, the existence of an opportunity for costly punishment causes a large increase in cooperation levels because potential free riders face a credible threat. We show, in particular, that in the presence of a costly punishment opportunity almost complete cooperation can be achieved and maintained although, under the standard assumptions of rationality and selfishness, there should be no cooperation at all. We also show that free riding causes strong negative emotions among cooperators. The intensity of these emotions is the stronger the more the free riders deviate from the group standard. Our results provide, therefore, support for the hypothesis that emotions are guarantors of credible threats.

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Human groups maintain a high level of sociality despite a low level of relatedness among group members. This paper reviews the evidence for an empirically identifiable form of prosocial behavior in humans, which we call ‘strong reciprocity, ’ that may in part explain human sociality. A strong reciprocator is predisposed to cooperate with others and punish non-cooperators, even when this behavior cannot be justified in terms of extended kinship or reciprocal altruism. We present a simple model, stylized but plausible, of the evolutionary emergence of strong reciprocity. 1

evidence utilizing large groups

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Most contracts, whether between voters and politicians or between house owners and contractors, are incomplete. “More law,” it typically is assumed, increases the likelihood of contract performance by increasing the probability of enforcement and/or the cost of breach. This paper studies a contractual relationship where the first mover has to decide whether she wants to enter a contract without knowing whether the second mover will perform. We analyze how contract enforceability affects individual performance for exogenous preferences. Then we apply a dynamic model of preference adaptation and find that economic incentives have a non–monotonic impact on behavior. Individuals perform a contract when enforcement is strong or weak but not with medium enforcement probabilities: Trustworthiness is “crowded in” with weak and “crowded out” with medium enforcement. In a laboratory experiment we test our model’s implications and find support for the crowding prediction. Our finding is in line with the recent work on the role of contract enforcement and trust in formerly Communist countries.

Social interactions are frequently associated with social approval. Anticipation of social sanctions may have important economic consequences, in particular in the realm of collective action and voluntary cooperation. This paper investigates the impact and the limitations of social rewards on people’s behavior in the provision of a public good. We examine whether the opportunity to receive social approval in exchange for participation in collective actions is capable of overcome free-riding. We find that approval incentives alone are not sufficiently strong to cause a reduction in free-riding. However, in combination with some minimal social familiarity approval incentives generate a significant rise in cooperation. Our results also suggest that approval incentives give rise to multiple equilibria. ©1999 Elsevier Science B.V. All rights reserved.