The Signalling Power of Sanctions in Collective Action Problems

Joel van der Weele

No ECO2007/10, Economics Working Papers from European University Institute

Abstract: We present a model of collective action in a heterogenous population of egoists and conditional cooperators. Each player is uncertain about the cooperative inclinations of the other player. A government or principal who has information about the distribution of types may introduce sanctions for defection. We study the impact of such sanctions through the e¤ect on the beliefs of the players about the distribution of types they are facing. It is shown that in equilibrium sanctions can crowd out trust between agents by sending a signal that there are many egoists around. This can lead the government to set low sanctions to induce trust and 'crowd in' cooperation. In cases where conditional cooperation is an important factor in collective action, as is the case in tax compliance, the model provides a rationale for the low observed sanctions in the real world.

Keywords: Collective action; trust; incentives; crowding out; conditional cooperation (search for similar items in EconPapers)
JEL-codes: D83 J30 K42 M52 (search for similar items in EconPapers)
Date: 2007
New Economics Papers: this item is included in nep-cbe, nep-cdm and nep-soc
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Persistent link: https://EconPapers.repec.org/RePEc:eui:euiwps:eco2007/10

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