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THE OPTIMAL INCENTIVE IN PROMOTING COOPERATION: PUNISH THE WORST AND DO NOT ONLY REWARD THE BEST

Laboratory of Mathematics and Complex Systems, Ministry of Education, School of Mathematical Sciences, Beijing Normal University, Beijing 100875, P. R. China

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YALI DONG

School of Systems Science, Beijing Normal University, Xinjiekouwai Street No. 19, Beijing 100875, P. R. China

E-mail Address: dongyali@bnu.edu.cn

Corresponding author.

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, and

BOYU ZHANG

Laboratory of Mathematics and Complex Systems, Ministry of Education, School of Mathematical Sciences, Beijing Normal University, Beijing 100875, P. R. China

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https://doi.org/10.1142/S0217590820500071Cited by:3 (Source: Crossref)

Abstract

Incentive institutions that reward cooperators and punish free-riders are often used to promote cooperation in public goods games. We show that for incentives of intermediate size, a sanctioning institution that punishes the worst players can sustain full cooperation and that a rewarding institution can promote cooperation only if lower contributors also have the chance to win the reward. Furthermore, if the incentive institution can provide both reward and punishment, then it should use reward as much as possible. The group welfare is maximized when the punishment is just barely larger than the minimum required to obtain the full contribution.

Keywords:

JEL: C73, D02

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