Covenants before the swords: The limits to efficient cooperation in heterogeneous groups

Christian Koch, Nikos Nikiforakis, Charles N. Noussair

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

Abstract

When agents derive heterogeneous benefits from cooperation, a tension between efficiency and equality often arises. This tension can impede agents’ ability to cooperate efficiently. We design a laboratory experiment, in which we investigate the capacity of communication and punishment, separately and jointly, to promote cooperation in such an environment. Our results reveal that cooperation and earnings are significantly greater when both communication and punishment (a sword) are possible than when only one is available. Both cooperation levels and earnings, however, still fall substantially below the maximum possible. The reason is that groups establish covenants, i.e. mutual contribution agreements, that tend to strike a compromise between efficiency and equality. The timing of communication is critical. A history of sanctioning substantially reduces the probability that groups subsequently establish a covenant. Overall, our findings indicate not only the benefits of early communication, but also some limits to efficient cooperation in heterogeneous groups.

Original languageEnglish (US)
Pages (from-to)307-321
Number of pages15
JournalJournal of Economic Behavior and Organization
Volume188
DOIs
StatePublished - Aug 2021

Keywords

  • Communication
  • Cooperation
  • Heterogeneity
  • Normative conflict
  • Punishment

ASJC Scopus subject areas

  • Economics and Econometrics
  • Organizational Behavior and Human Resource Management

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