Covenants before the swords: The limits to efficient cooperation in heterogeneous groups

Christian Koch, Nikos Nikiforakis and Charles Noussair

Journal of Economic Behavior & Organization, 2021, vol. 188, issue C, 307-321

Abstract: When agents derive heterogeneous benefits from cooperation, a tension between efficiency and equality often arises. This tension can impede agents’ ability to cooperate efficiently. We design a laboratory experiment, in which we investigate the capacity of communication and punishment, separately and jointly, to promote cooperation in such an environment. Our results reveal that cooperation and earnings are significantly greater when both communication and punishment (a sword) are possible than when only one is available. Both cooperation levels and earnings, however, still fall substantially below the maximum possible. The reason is that groups establish covenants, i.e. mutual contribution agreements, that tend to strike a compromise between efficiency and equality. The timing of communication is critical. A history of sanctioning substantially reduces the probability that groups subsequently establish a covenant. Overall, our findings indicate not only the benefits of early communication, but also some limits to efficient cooperation in heterogeneous groups.

Keywords: Communication; Punishment; Cooperation; Normative conflict; Heterogeneity (search for similar items in EconPapers)
JEL-codes: C92 D74 H41 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:188:y:2021:i:c:p:307-321

DOI: 10.1016/j.jebo.2021.05.003

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