Solving the Volunteer's Dilemma: The Efficiency of Rewards Versus Punishments

Shmuel Leshem and Avraham Tabbach

American Law and Economics Review, 2016, vol. 18, issue 1, 1-32

Abstract: This paper studies a class of second-best solutions to the Volunteer's Dilemma. We consider a game in which each one of $n$ players must simultaneously choose whether to incur a cost and thereby prevent a social harm. Players could be rewarded for helping, be punished for not helping, or be subject to any combination of rewards and punishments. We show that because of the substitutability of players' efforts, the use of rewards rather than punishments minimizes social costs (expected costs of helping, expected harm, and expected transfer costs) for nearly any number of players and ratio of cost-of-helping to social harm. This helps to explain the paucity of affirmative legal duties and the prevalence of whistle-blower and most-wanted rewards.

Date: 2016
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