Working Paper: NBER ID: w17033
Authors: James Andreoni; Laura K. Gee
Abstract: 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.
Keywords: delegated enforcement; peer punishment; public goods; hired gun mechanism
JEL Codes: C72; C91; C92; D7; H41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| hired gun mechanism (D82) | peer-to-peer punishment (C92) |
| hired gun mechanism (D82) | overall group welfare (I30) |
| hired gun mechanism (D82) | average per person earnings (J31) |
| hired gun mechanism (D82) | reliance on peer punishment (C92) |