The Effect of Rewards and Sanctions in Provision of Public Goods

A growing number of field and experimental studies in social dilemma settings focus on the institutional arrangements by which individuals are able to solve collective action problems. Important in this research is the role of reciprocity and institutions that facilitate cooperation via opportunities for monitoring, sanctioning, and rewarding others. This study contrasts sanction and reward institutions in the context of a public goods experiment. Sanctions represent a net loss, a cost to both the participant imposing the sanction and the individual receiving the sanction. Rewards represent a zero sum transfer from participants giving rewards to those receiving rewards. These institutions are compared in regard to how, and to what extent, decision makers use the sanction and reward opportunities, as well as their impact on overall levels of cooperation and economic efficiency. (JEL C92)