Can Sanctions Induce Pessimism? An Experiment

Roberto Galbiati, Karl Schlag and Joël van der Weele ()

Labsi Experimental Economics Laboratory University of Siena from University of Siena

Abstract: We experimentally investigate the effects of sanctions when there are multiple equilibria. Two subjects play a two-period minimum effort game in the presence of third player (principal). The principal benefits from coordination on higher effort, and is the only one informed of previous choices choices. We contrast introducing an exogenously imposed sanction in the second round to the case where the principal is allowed to decide whether or not, at a small cost, to impose a sanction. We find that exogenously introduced sanctions are effective in inducing optimistic beliefs about others and help coordination on more efficient equilibria. On the other hand, endogenously introduced sanctions negatively influence beliefs about the effort of the other player. The results supports the idea that sanctions have an expressive dimension which can undermine their effectiveness by discouraging optimistic players.

Keywords: Sanctions; beliefs; expressive law; deterrence; coordination; minimum effort game (search for similar items in EconPapers)
JEL-codes: C92 D83 K42 (search for similar items in EconPapers)
Date: 2009-01
New Economics Papers: this item is included in nep-cbe and nep-exp
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Working Paper: Can sanctions induce pessimism? An experiment (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:usi:labsit:024

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