مجله رفتار اقتصادی و سازمان

Abstract Sanctions are often so weak that a money maximizing individual would not be deterred. In this paper I test the hypothesis that imperfect sanctions may nonetheless serve a forward looking purpose if sufficiently many individuals are averse against advantageous inequity. Using a linear public good with centralized punishment, I find that participants increase contributions even if severity had been insufficient to deter a profit-maximizing individual. The more an individual is averse against exploiting others, the less it matters whether punishment was deterrent.

Introduction Elinor Ostrom compressed decades of fieldwork into just five principles. If these principles are respected, chances are that the commons can be preserved. Her final two principles are vigilance and graduated sanctions. Communities who have tried to do away with sanctions entirely have usually not been successful. But many successful communities have frequently had recourse to mild sanctions (Ostrom, 1990). In other areas of social life, sanctions are also frequently imperfect. Crime often goes unnoticed. For instance in most parts of the US, prostitution is a crime. Yet the risk for a prostitute to be arrested has been estimated to be as low as 1:450 (Levitt and Venkatesh, 2007). The police do often not have enough resources to investigate petty crime. Criminal sanctions are rarely so severe that the expected value of committing crime becomes negative. Likewise, as a rule tort only entitles the victim to compensation. If there is only a small risk that the victim will not sue, or will not win in court,1 the expected loss from being sued is below the expected gain from tortious behavior. In this paper I model and experimentally test one reason why imperfect sanctions might not be pointless: a sufficient fraction of the addressees might hold social preferences. Sanctions might help stabilize the willingness of inequity-averse individuals to do what is in society's best interest. This is of course not the only reason why imperfect sanctions may help govern behavior. Individuals may not simply compare the gain from deviation with the expected loss from a sanction. They may expect additional social sanctions, like scorn from their peers. They may have moral compunctions. They may consider the socially undesirable act as detrimental to self-esteem. They may be risk averse and therefore weigh the prospect of the sanction more heavily than its expected value. In repeated interaction, initially mild sanctions may serve an educational purpose, and they may signal to loyal members of the community that society cares. I do not mean to say that such alternative explanations are immaterial. All I want to show is that social preferences provide one consistent explanation for the governance effect of imperfect sanction. Sanctions that would be too weak to deter individuals who straightforwardly maximize their utility from non-social preferences may suffice to deter individuals holding social preferences, even if their disutility from outperforming others is small. Imperfect sanctions extend the domain of cooperation to individuals who do not care strongly about others, but who are also not immune to the detriment they inflict on others. For such individuals, even imperfect sanctions deter. I proceed in two steps. I develop a simple model, derived from the canonical formalization of social preferences in Fehr and Schmidt (1999). This model demonstrates that, under ideal circumstances, sanctions are not a precondition for cooperation. Yet this presupposes that all individuals involved are strongly averse against exploiting others, and know all others are. In that case, all they need to end up in the efficient equilibrium is a coordination device. Yet often conditions are not that ideal. At least some members of the group in question may not hold social preferences that are sufficiently pronounced, or preferences of other group members may be uncertain. In that case, society need not shift to the opposite extreme and deter everybody, including selfish individuals. It may suffice to back up weak social preferences by imperfect sanctions. To test whether social preferences make imperfect sanctions instrumental, I use one experimental standard design that has been at the origin of this theoretical model, the linear public good. I entrust an additional anonymous participant with the right to punish the four active members of the current group. With considerable frequency my experimental authorities indeed mete out imperfect sanctions. I also administer a standard test of social preferences (Liebrand and McClintock, 1988). Using this information, I find that the more participants have disutility from advantageous inequity the less it matters for their reactions to punishment whether punishment had been deterrent. The remainder of the paper is organized as follows. Section 2 explains how I contribute to the literature. Section 3 develops the hypothesis. Section 4 presents the design of the experiment. Section 5 reports results. Section 6 concludes with discussion.

Conclusion As a matter of fact, sanctions are often imperfect. The expected value of the sanction, i.e. the probability of enforcement multiplied by the severity of the sanction, is often smaller than the expected benefit from socially detrimental behavior. Sometimes the legal order cannot avail itself of a sufficiently severe sanction. Take the person who ignores the rules for access to donor organs and does so to save her own life. Even if the legal order does not bar capital punishment in the first place, buying a donor organ will likely not qualify. In other instances, society cannot afford perfect sanctions. Many crimes go undetected because the police have not enough personnel to investigate them. Finally, the legal order may dislike deterrent sanctions for other normative reasons. It for instance is afraid that sending first offenders to jail will introduce them to a criminal career. From a rational choice perspective, deterrent sanctions are appealing. If only there is a credible threat with a sufficiently severe sanction, rational would-be criminals desist from crime. By the very fact that crime no longer pays, the actual enforcement of the sanction becomes an action off the equilibrium path. The mere threat is enough. From this perspective, imperfect sanctions are not only pointless, they are even counter-productive. Rational perpetrators realize that breaking the rules of social conduct is profitable business. If society does not want to entirely give up on its normative expectations, a lot of costly enforcement becomes necessary precisely because the sanction is not perfect. This paper tries to rebut this argument on its own turf, i.e. with an argument from rational choice theory. I introduce sanctions into a standard model of social preferences. With the help of this very simple model I show that imperfect sanctions do serve a socially desirable purpose if only a sufficient fraction of the population is not completely selfish but also cares about the negative effects of their own actions on the well-being of others. The theoretical argument even goes through if the population is known to be heterogeneous, with some selfish individuals. The theoretical argument is also robust to the introduction of mild uncertainty about the willingness of others to forego additional benefit for themselves at the expense of others. I use a standard experimental design, the linear public good with punishment, to test the prediction: if participants hold social preferences, imperfect sanctions help them sustain cooperation. The prediction is supported by the data. Actually, the stranger design puts this prediction to a particularly strong test. Participants neither know which peers, nor which authority they will meet in the next round. As in a one-shot game, their social preferences can only be of an abstract nature, directed toward anyone like them. And punishment in the previous period only gives them a signal about a possible reaction of next period's authority. This is less than knowing the authority's precise reaction function, as they would if there was an explicit penal code. Lab experiments are not meant to map reality. Exploiting other anonymous group members in a public good game is not crime. There is not even an explicit normative expectation (although informing participants about results from an earlier experiment with a very similar setup was meant to induce an implicit normative expectation). On purpose economic experiments are unframed. The naked opportunity structure does not trigger moral compunctions the same way as those real life situations that trigger criminal investigations or tort liability. Since there is no frame, would-be perpetrators are also derived of the possibility to construct the situation such that the victim falls outside their reference groups (“the anonymous department store is not a person who deserves my empathy”). In the lab, no more than a few cents are at stake, whereas the effects of crime or tort on victims tend to be much more severe. Gains from misbehavior are also much more contained in the lab than they tend to be in the field. Therefore socially desirable behavior might be cheaper in the lab. I am happy to acknowledge all these limitations inherent in my empirical approach. In the light of these limitations, one certainly should be hesitant to directly extrapolate from these findings to policy choices. All I hope to contribute to the policy discourse is one argument. If it is reasonable to expect heterogeneous preferences, then imperfect sanctions may serve a useful purpose. They deter those who are somewhat inclined to care about harm on others, but not strongly enough. The prospect of mild sanctions may suffice to tilt the balance in favor of socially desirable behavior. Of course, society is even better off if it inflicts perfect sanctions on those who do not care about others in the first place. But this requires discriminating according to social preferences, which may be difficult to do in the field. In that event, mild sanctions may be an affordable way of making the majority of society resilient against the occasional experience of deviance.