SummaryAlthough it is widely recognized that sanction increases cooperation in a public good game, comparatively little attention has been paid to a scenario in which agents have heterogeneous productivities (i.e. asymmetric impact on the group account). This paper examines the extent to which sanction works in this scenario by varying marginal per capita return (MPCR) among group members. Experimental results indicate that in the absence of sanctions, productivity heterogeneity hampers cooperation. Allowing punishment in these groups significantly enhances average contributions of group members, but does not increase welfare. In groups in which cooperation is highly successful, high-productivity agents actively punish low-productivity agents in initial periods. However, conditional on individual contributions, high-productivity agents receive more punishment, and behave more responsively by raising their contributions in the next period. The results mirror the reality in which elites in a society are under higher pressure, since their choices are likely to have a deeper impact on a society.

Who acts more like a game theorist? Group and individual play in a sequential market game and the e¤ect of the time horizon

No abstract

We consider a voluntary contributions game, in which players may punish others after contributions are made and observed. The productivity of contributions, as captured in the marginal-per-capita return, differs among individuals, so that there are two types: high and low productivity. Every two or eight periods, depending on the treatment, individuals vote on a punishment regime, in which certain individuals are permitted, but not required, to have punishment directed toward them. The punishment system can condition on type and contribution history. The results indicate that the most effective regime, in terms of contributions and earnings, is one that allows punishment of low contributors only, regardless of productivity. Nevertheless, only a minority of sessions converge to this system, indicating a tendency for the voting process to lead to suboptimal institutional choice.JEL Classification: C92, D74, H41

This paper adds to the economic-psychological research on tax compliance by experimentally testing a simple auditing rule that induces strategic uncertainty among taxpayers. Under this rule, termed the bounded rule, taxpayers are informed of the maximum number of audits by a tax authority, so that the audit probability depends on the joint decisions among the taxpayers. We compare the bounded rule to the widely studied ‡at-rate rule, where taxpayers are informed that they will be audited with a constant probability. The experimental evidence shows that, as theoretically predicted, the bounded rule induces the same level of compliance as the ‡at-rate rule when strategic uncertainty is low, and a higher level of compliance when strategic uncertainty is high. The bounded rule also suppresses the "bomb crater"e¤ect often observed in prior studies. The results suggest that strategic uncertainty due to interactions among taxpayers could be an e¤ective device to deter tax evasion.