There is strong evidence that people exploit their bargaining power in competitive markets but not in bilateral bargaining situations. There is also strong evidence that people exploit free-riding opportunities in voluntary cooperation games. Yet, when they are given the opportunity to punish free-riders, stable cooperation is maintained although punishment is costly for those who punish. This paper asks whether there is a simple common principle that can explain this puzzling evidence. We show that if some people care about equity the puzzles can be resolved. It turns out that the economic environment determines whether the fair types or the selfish types dominate equilibrium behavior.

Human cooperation is an evolutionary puzzle. Unlike other creatures, people frequently cooperate with genetically unrelated strangers, often in large groups, with people they will never meet again, and when reputation gains are small or absent. These patterns of cooperation cannot be explained by the nepotistic motives associated with the evolutionary theory of kin selection and the selfish motives associated with signalling theory or the theory of reciprocal altruism. Here we show experimentally that the altruistic punishment of defectors is a key motive for the explanation of cooperation. Altruistic punishment means that individuals punish, although the punishment is costly for them and yields no material gain. We show that cooperation flourishes if altruistic punishment is possible, and breaks down if it is ruled out. The evidence indicates that negative emotions towards defectors are the proximate mechanism behind altruistic punishment. These results suggest that future study of the evolution of human cooperation should include a strong focus on explaining altruistic punishment.

Ernst 'ehr and Simon 01chter 3niversity of 7urich 9nstitute for Empirical Research in Economics =l>mlisalpstrasse 10 CB-D00E 7urich e-mail: efehrGieHIuniJhIchK LaechterGieHIuniJhIch http:MMHHHIuniJhIchMieHMLrpMfehrMindeNIhtml OorPinL Qaper RoI 10 June 1TTT U Vhis paper is part of the E3-VWR Research RetHorP ERXEYR ('WR[-CVTD-02]D)I Support from the SHiss Rational Science 'oundation under pro_ect number 1214-0b1000IT7 and from the WacYrthur 'oundation RetHorP on Economic Environments and the Evolution of 9ndividual Qreferences and Social Rorms is Lratefully acPnoHledLedI Oe received valuable comments by seminar participants at the WacYrthur-'oundation WeetinL in Stanford, the OorPshop in ENperimental Economics in =erlin, the YSSY-WeetinLs in ReH erleans and ReH forP, the 9YREQ conference in

There is strong evidence that people exploit their bargaining power in competitive markets but not in bilateral bargaining situations. There is also strong evidence that people exploit free-riding opportunities in voluntary cooperation games. Yet, when they are given the opportunity to punish free-riders, stable cooperation is maintained although punishment is costly for those who punish. This paper asks whether there is a simple common principle that can explain this puzzling evidence. We show that if some people care about equity the puzzles can be resolved. It turns out that the economic environment determines whether the fair types or the selfish types dominate equilibrium behavior.

There is strong evidence that people exploit their bargaining power in competitive markets but not in bilateral bargaining situations. There is also strong evidence that people exploit free-riding opportunities in voluntary cooperation games. Yet, when they are given the opportunity to punish free riders, stable cooperation is maintained, although punishment is costly for those who punish. This paper asks whether there is a simple common principle that can explain this puzzling evidence. We show that if some people care about equity the puzzles can be resolved. It turns out that the economic environment determines whether the fair types or the selfish types dominate equilibrium behavior