Sunday, June 26, 2011

Design of enforcement mechanisms: policing versus gunfighting

A new addition to the experimental literature on how the possibility of punishment influences the efficient provision of public goods (and the inefficient provision of punishments):

Gun For Hire: Does Delegated Enforcement Crowd out Peer Punishment in Giving to Public Goods? -- by James Andreoni, Laura K. Gee
This paper compares two methods to encourage socially optimal provision of a public good. We compare the efficacy of vigilante justice, as represented by peer-to-peer punishment, to delegated policing, as represented by the "hired gun" mechanism, to deter free riding and improve group welfare. The "hired gun" mechanism (Andreoni and Gee, 2011) is an example of a low cost device that promotes complete compliances and minimal enforcement as the unique Nash equilibrium. We find that subjects are willing to pay to hire a delegated policing mechanism over 70% of the time, and that this mechanism increases welfare between 15% to 40%. Moreover, the lion's share of the welfare gain comes because the hired gun crowds out vigilante peer-to-peer punishments.

The Hired Gun Mechanism -- by James Andreoni, Laura K. Gee

We present and experimentally test a mechanism that provides a simple, natural, low cost, and realistic solution to the problem of compliance with socially determined efficient actions, such as contributing to a public good. We note that small self-governing organizations often place enforcement in the hands of an appointed leader-the department chair, the building superintendent, the team captain. This hired gun, we show, need only punish the least compliant group member, and then only punish this person enough so that the person would have rather been the second least compliant. We show experimentally this mechanism, despite having very small penalties out of equilibrium, reaches the full compliance equilibrium almost instantly.

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