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Punishing Free-riders: Direct and Indirect Promotion of
Cooperation
Mizuho Shinada
a, b
& Toshio Yamagishi
a, *
a
Graduate School of Letters, Hokkaido University, N10 W7 Kita-ku, Sapporo, Japan
060-0810; and
b
Research Fellow of Japan Society for the Promotion of Science
*
To whom correspondence should be addressed.
Phone: +81-11-706-4157
Fax: +81-11-706-3066
E-mail: [email protected]
Running title: Direct and indirect effect of punishment
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Abstract. Human cooperation in a large group of genetically unrelated people is an
evolutionary puzzle. Despite its costly nature, cooperative behaviour is commonly
found in all human societies, a fact that has interested researchers from a wide range of
disciplines including biology, economics, and psychology to name a few. Many
behavioural experiments have demonstrated that cooperation within a group can be
sustained when free riders are punished. We argue that punishment has both a direct and
an indirect effect in promoting cooperation. The direct effect of punishment alters the
consequences of cooperation and defection in such a way as to make a rational person
prefer cooperation. The indirect effect of punishment promotes cooperation among
conditional cooperators by providing the condition necessary for their cooperation —
i.e., the expectation that other members will also cooperate. Here we present data from
two one-shot, n-person Prisoner’s Dilemma games, demonstrating that the indirect
effect of punishment complements the direct effect to increase cooperation in the game.
Further, we show that the direct and indirect effects are robust across two forms of
punishment technology; either when the punishment is voluntarily provided by game
players themselves or when it is exogenously provided by the experimenter.
Key Words: Cooperation; Punishment; Expectation; Conditional cooperation; Prisoner’s
dilemma
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1. Introduction
One of the most distinguishing features of human societies is large-scale
cooperation among non-kin. Examples of such cooperation include hunting and meat
sharing and collaborative childcare in hunter-gatherer societies, contributions to public
goods, such as an irrigation system in agriculturalist societies, and market exchanges in
industrialized societies. Cooperation produces mutually beneficial outcomes, and yet is
costly for the individual. Some cooperative behaviour can be understood by kin
selection (Hamilton, 1964) – helping others can enhance the benefactor’s inclusive
fitness when the beneficiary is a genetic relative – and direct reciprocity between those
who are willing to trade-off the roles of benefactor and beneficiary (Trivers, 1971).
These two mechanisms can account for much of the cooperative behavior observed
among the animals including humans, but are insufficient to explain costly cooperation
in sizeable human groups consisting of genetically unrelated individuals in the absence
of long-term relationships. While free-riding on a public good is expected from the kin-
based and reciprocal altruism under these circumstances, experimental studies have
shown nontrivial contributions in anonymously played one-shot games with genetically-
unrelated participants (Andreoni & Petrie, 2004; Issac & Walker, 1988; Marwell &
Ames, 1981; Orbell, Dawes, & Van de Kragt, 1988; Rapoport, 1987; Yamagishi, 1988).
One possible explanation for cooperation in human groups is the punishment of
free-riders. Experimental studies have consistently demonstrated that punishment
(monetary and symbolic alike) promotes cooperation (Fehr & Fischbacher, 2003; Fehr
& Gächter, 2002; Masclet, Noussair, Tucker, & Villeval, 2003). Not only do people
show a propensity to cooperate under the threat of punishment in experimental games,
they are also willing to absorb costs for administering punishment to free riders
(Anderson & Putterman, 2006; Casari & Plott, 2003; Price, Cosmides, & Tooby, 2002).
Given the power of punishment to promote cooperation, it is surprising to us that many
theorists have generally overlooked the reason for punishment’s efficacy. We speculate
that the paucity of effort to address this question is at least partly based on the fact that
the answer seems self-evident; administration of punishment transforms outcomes of
cooperation and defection such that cooperation is more profitable than free-riding. This
direct effect of punishment could be the sole factor in explaining cooperation if, and
only if, one assumes that humans are strictly self-regarding with no consideration for
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the consequences to others. Olson (1965) clearly follows this logic when he wrote “…
rational, self-interested individuals will not act to achieve their common or group
interests” (p. 2) and “only a separate and selective incentive will stimulate a rational
individual in a latent group to act in a group-oriented way” (p. 51).
In this paper, we argue that the direct effect – transformation of incentives for
potential targets of punishment – alone is limited in its ability to explain the robust
effect of punishment. The limitation arises from the fact that punishment incurs a cost to
the punisher, whereas the benefit of punishment – public welfare generated by greater
cooperation – is shared equally by all members. Thus, the provision of punishment
involves a free-rider problem in itself; self-regarding individuals should not pay the cost
associated with imposing penalties on free-riders. This problem is called the second-
order public good dilemma (Oliver, 1980). Faced with this difficulty, some researchers
have argued that the cost of punishment becomes smaller in higher-order public good
dilemmas (e.g., punishment of non-punishers; punishment of those who don’t punish
non-punishers; etc.) than in the original public good dilemma (Boyd & Richerson, 1992;
Boyd, Gintis, Bowles, & Richerson, 2003; Henrich & Boyd, 2001; Henrich, 2004;
Sober & Wilson, 1998). Once the cost is reduced sufficiently for the provision of
punishment at a higher level, it should eventually stabilize cooperation in the original
public good dilemma.
We claim below that this cost-reduction argument can be augmented by an
efficiency-enhancement argument. In addition to the possibility that the cost associated
with providing punishment is smaller than that associated with providing the original
public good, we suggest that an indirect effect of punishment further enhances the
efficiency of punishment. There is a robust finding that an overwhelming majority of
players in the public goods game behave as conditional cooperators – individuals who
cooperate if (and only if) other members cooperate – rather than as unconditional
cooperators or unconditional defectors (Andreoni & Miller, 1993; Boehm, 1993;
Kurzban & Houser, 2005; Page & Putterman, 2005). Although players almost always
defect in response to defection in a public goods game, the majority of players choose to
cooperate when other players cooperate (Cho & Choi, 2000; Clark & Sefton, 2001;
Fischbacher, Gächter, & Fehr, 2001; Hayashi, Ostrom, Walker, & Yamagishi, 1999;
Kiyonari, Tanida, & Yamagishi, 2000; Watabe, Terai, Hayashi, & Yamagishi, 1996).
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Moreover, numerous studies have demonstrated a relationship between the expectation
of cooperation and cooperative behaviour; the stronger the expectation that others will
cooperate, the more likely it is that a player will choose to cooperate him or herself
(Charness & Dufwenberg, 2006; Dawes, 1980; Pruitt & Kimmel, 1977). Conditional
cooperators seek mutually beneficial opportunities, but only when their effort is
unlikely to be exploited by free-riders. For them, the expectation that others will
cooperate is a necessary (though not sufficient) antecedent for a cooperative venture.
The threat of punishment for free-riding provides reassurance to conditional cooperators
that other group members will also cooperate. This reassurance that others will also
cooperate satisfies their condition for cooperation. Punishment promotes cooperation
among conditional cooperators through the reassurance it provides rather than by the
fear of being a target of penalization (the direct effect of punishment). We call this the
indirect effect of punishment.
Most experimental studies of punishment (e.g., Fehr & Gächter, 2002; Ostrom,
Walker, & Gardner, 1992: Yamagishi, 1986) do not appreciate the possibility that
indirect effect supplements the direct effect of punishment, and, instead, analyze the
combined effect (including both direct and indirect effects) of punishment for promoting
cooperation. The purpose of this study is to demonstrate the augmentative nature of the
indirect effect, such that the combined effect of punishment is greater than the level
expected from the direct effect alone. For this purpose, we compare the size of
punishment’s combined effect with the size of the direct effect alone. Specifically, we
design a one-shot, three-person PD game with three between-subjects conditions: the
no-punishment condition, the direct effect (of punishment) condition, and the combined
effect (of punishment) condition. We adopt a one-shot rather than repeated game design
often used in the study of punishment (Anderson & Putterman, 2006; Fehr & Gächter,
2002; Ostrom et al., 1992; Yamagishi, 1986). The reason for the use of a one-shot
instead of a repeated game is that measurement of the direct effect, in its pure form free
from the contaminating influences of indirect effects, is an indispensable part of this
study. In repeated games, those who are afraid of receiving a penalty (i.e., those who
experience the direct effect of punishment) and thus cooperate at a higher level may
unwittingly promote cooperation of the other players who are conditional cooperators.
The improved level of cooperation of the other players might, in turn, improve the
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original players’ level of cooperation. That is, the direct effect of punishment in
repeated games can engender an indirect effect through the other players’ behavior, and
thus identifying the direct effect of punishment in its pure form is theoretically
impossible. This difficulty of identifying the direct effect can be avoided in one-shot
games in which changes in one player’s behavior are not reflected in other players’
behavior. On the other hand, whether or not punishment has an effect in the absence of
the actual experience of being punished has been debated, and no firm conclusions have
yet been reached (Eek, Loukopoulos, Fujii, & Gärling, 2002; Loukopoulos, Eek,
Gärling, & Fujii, 2006; Walker & Halloran, 2004). The current study thus aspires, first,
to provide evidence for the effect of punishment in the absence of the actual experience
of punishment, and, second, to sort out indirect and direct effects of punishment from
their combined effect.
We conducted two experiments, the major difference between the two residing in
the punishment mechanism. In the first study, punishment was provided exogenously.
That is, penalties were imposed by the experimenter, requiring no cost to be paid by
players themselves. In contrast, punishment in study two was endogenous, dispensed by
individual game players themselves who had to pay a cost for its provision. In both
experiments, each player of a three-person PD game first decided what portion of an
initial endowment they would contribute to benefit the other two players. Afterwards,
players faced the possibility of punishment for free-riding. In the direct effect condition,
the participant alone faced the possibility of punishment. Since no penalties were
administered to other players, they could free-ride with impunity. Thus, only the direct
effect of punishment could influence the participant’s decision to cooperate. In the
combined effect condition, all players were subject to punishment. Thus, in addition to
the direct effect of punishment for free-riding, participants could expect greater
cooperation (on average) from their fellow group members who also faced the
possibility of penalization. In the no-punishment condition, there was no penalty for
free riding. Thus, any difference in the sum contributed between the direct effect and
no-punishment conditions must be due to the direct effect of punishment alone. In this
sense, any additional contribution in the combined effect condition, over and above that
observed in the direct effect condition, can be regarded as evidence for the indirect
effect.
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2. Study 1
2.1. Methods
A total of 157 freshmen (79 men and 78 women) at Hokkaido University in Japan
participated in this experiment for monetary rewards. They were recruited from a large
subject pool consisting of freshmen from various disciplines, and were randomly
assigned to one of three conditions (n = 52 in the no-punishment condition, 51 in the
direct effect condition, and 54 in the combined effect condition). Two of the participants
misunderstood the instructions and were removed from the analysis.
1
Participants were
assured that their contributions would remain anonymous to both the other participants
and to the experimenter with whom they met in person.
In all three conditions, participants played a one-shot, three-person PD game.
Participants were escorted to individual rooms without seeing or talking to other
participants. Each member of the three-person group was provided with an endowment
of 800 yen from the experimenter, and was asked to contribute some portion of that
endowment to the other group members. The actual amount was left up to each player.
Each player received the total amount contributed by the other two players. Thus, if
everybody contributed the full endowment of 800 yen, each player received 1,600 yen
(800 from each of the other players). Since each player decided on the sum to contribute
without knowing the value of the other contributions, contributing nothing was the most
profitable choice regardless of the amount other members decided to contribute. In the
event that all three players adopted this strategy of contributing nothing, each would
retain their original endowment of 800 yen. Thus, the monetary payoff for each
participant i in the no-punishment condition is given by
)1...(............................................................
∑
≠
+−=
ij
jii
gagy
π
where y is the endowment and a is the benefit generated by another member’s
cooperation (y = 800, and a = 1; note that the participant’s own contribution does not
generate any benefit to him or herself, as implied by j ≠ i).
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Players in the no-punishment condition neither faced punishment nor were they
informed that punishment was even a possibility. Conversely, players in the remaining
two conditions were informed that they might be punished if they did not contribute the
entire sum of their endowment to the other group members. Furthermore, players in the
two punishment conditions were informed that there was an increasing probability of
punishment as the value of their contribution decreased; however, players were not told
of the specific probabilities
2
. We chose to implement a punishment mechanism with
incomplete information regarding the probability of being punished, since the exact
probability of punishment at various level of cooperation is hardly available in the real
world. Punishment was imposed exogenously by the experimenter, though this method
of administrating punishment was changed in the second study. While we used the term
“punishment” in the instructions of the first experiment, we omitted the term in the
second study. We discuss the implications of using (or not using) the term
“punishment” in the general discussion.
When a player was penalized, he or she lost half of the portion of the endowment
he or she kept at hand. Thus, the monetary payoff for each participant i when he or she
is punished is given by
)2..(............................................................2/)(
*
iii
gy −−=
π
π
The monetary payoff for the participant who was not punished is given by equation (1).
Participants in the direct effect condition were further told that only one of the
three participants would be subject to punishment, and that they had been randomly
chosen as the sole target of punishment. They were further instructed that the other
players would remain uninformed of this fact, having no knowledge about the
possibility of punishment. Since the participant alone was subject to punishment, and
the other members were not subject to punishment, only the direct effect was possible in
this condition. Players in the combined effect condition were told that all three members
of the group would face the possibility of punishment. In order to keep the threat of
receiving punishment constant across the two punishment conditions, players were told
that the probability of punishment would be determined independently for each player,
so that the likelihood of punishment was unaffected by the decisions made by other
players.
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Three players assigned to the combined effect condition were grouped together to
constitute a single groups to play a public goods game. Other experimental groups
consisted of one player from the direct effect condition and two players from the no-
punishment condition. In order to maintain a balance in the number of players assigned
to each condition, one player in the no-punishment condition was sometimes paired
with more than one player in the direct effect condition when calculating their rewards.
3
After the experiment, all participants completed a post-experimental
questionnaire. Finally, they were informed of their game outcome—how much each of
the three members contributed, and whether or not they received a penalty (in the two
punishment conditions), and how much they earned. A secretary who knew nothing
about the experiment paid each participant individually and then discharged them. The
research protocol was approved by the ethics committee for the Department of
Behavioural Science at Hokkaido University.
2.2. Results
Because there were no main or interaction effects involving player’s sex, the
following analyses used the combined data for men and women. The results of the first
study (Fig. 1) show that the base-rate level of cooperation (the portion of the initial
endowment contributed for other members) in the no-punishment condition was 239.81
yen (SD = 197.03), or about 30 percent of the endowment. Cooperation levels in the two
punishment conditions were higher than this base-rate level (345.60 yen, SD = 223.80,
in the direct effect condition, and 435.47 yen, SD = 231.17, in the combined effect
condition). We conducted a set of regression analyses for cooperation level using two
dummy variables; one for the presence of punishment (dummy 1; zero in the no-
punishment condition and one in the direct and the indirect effect conditions) and the
other for the presence of indirect effect (dummy 2; zero in the no-punishment and the
direct effect conditions and one in the indirect effect condition). Column 1 in Table 1
includes only dummy 1; the effect for the dummy variable represents the difference in
cooperation level between the no-punishment condition and the two punishment
conditions combined. The significant regression effect for this variable in Column 1
shows that punishment increased the cooperation level by 152.04 yen.
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Table 1: The effects of anticipated punishment on cooperation in study one. Regression
analyses for contribution level on two dummy variables.
Variables (1) (2)
Dummy 1 152.04
(37.47)
P < .0001
105.79
(43.15)
P = .015
Dummy 2 . 89.87
(42.95)
P = .038
Constant 239.81
(30.54)
P < .0001
239.81
(30.21)
P < .0001
N 155 155
R
2
0.10 0.12
Standard errors in parentheses.
The second dummy was then added to the regression equation (Column 2) to
decompose the overall effect of punishment into two components: one for the direct
effect and one for the indirect effect: The contribution level in the no-punishment
condition is represented by the constant in Column 2, since both of the two dummies are
zero in this condition. The contribution level in the direct effect condition is the sum of
the constant and the regression coefficient for dummy 1 (that takes the value of one),
and thus the coefficient for dummy 1 represents the difference in cooperation between
the no-punishment condition and the direct effect condition. In Figure 1, this effect
corresponds to the dark portion of the bar for the direct effect condition. Similarly, the
coefficient for dummy 2 represents the difference in cooperation between the direct
effect condition and the indirect effect condition, corresponding to the bark portion of
the bar for the indirect effect condition. The two effects are similar in size, indicating
that the indirect effect was almost as strong as the direct effect. The interpretation of the
relative sizes of these two effects, however, has to be made with caution since effect
sizes depend on the parameters used in the experiment, including the cost and benefit
for cooperation and the cost and size of punishment.
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Fig. 1: Direct and indirect effects of punishment in the first study. The left bar estimates
the base level of cooperation (sum of contribution) that occurs when free-riding is not punished.
The darker portion of the middle bar (105.79 yen) represents the direct effect of punishment –
cooperation over and above that observed in the no-punishment condition. The right bar
illustrates the combined effect of punishment (direct and indirect) on cooperation; the darker
portion (89.87 yen) represents the contribution level over and above that observed for the direct
effect of punishment (i.e., the indirect effect of punishment). Error bars represent standard error.
We expected that participants would cooperate more in the combined effect
condition than in the direct effect condition since the expectation that other members
would cooperate due to possible punishment would be higher in the former condition
than in the latter. We also argued that since there was no possibility that other members
would be punished in the no-punishment and direct effect conditions, participants’
expectations would not differ between the two. We measured participants’ expectations
in the post-experimental questionnaire by asking; “How much do you think the other
two contributed on average?” The average expectation was 400.57 yen (SD = 129.12) in
the combined effect condition, 329.00 yen (SD = 130.58) in the direct effect condition,
and 274.33 yen (SD = 157.81) in the no-punishment condition. A regression analysis
using a set of two dummy variables (see the analysis of contributions) indicated that
both the difference between the direct effect and the combined effect conditions (b =
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71.57, t(152) = 2.60, p = .01) as well as the difference between the no-punishment and
the direct effect conditions (b = 54.67, t(152) = 1.97, p = .05) were significant. While
the former difference provides support for our argument, the unanticipated difference
between the no-punishment and the direct effect condition strongly suggests that at least
a substantial portion of the participant’s responses to the post-experimental questions
represents “projection” of their own behavior onto the other members. Participants in
the direct effect condition overestimated the other two members’ actual contribution
(329.00 vs. 239.81 yen) to match their own contribution (345.60 yen), at least in their
responses to post-experimental questions, whereas the estimations of those in the no-
punishment condition (274.33 vs. 239.81 yen) and in the combined effect condition
(400.57 vs. 435.47 yen) did not greatly differ from the actual levels of contribution. We
do not know if this overestimation by participants in the direct effect condition occurred
in the experiment and affected their decisions or emerged only in their responses to the
post-experimental question. However, even if it had affected their decision in the
experiment, it should have made their contribution higher rather than lower. The
“inflated” level of contribution in the direct effect condition beyond the effect caused by
the threat of punishment alone, if existing at all, should have worked against our
hypothesis concerning indirect effect. Thus, this result provided stronger support to our
conclusion about indirect effect.
3. Study 2
The results of the first study confirmed, first, that the threat of punishment can
enhance cooperation in a one-shot PD game. These results further provided evidence
that the indirect effect of punishment augments its direct effect. This finding, however,
has to be qualified in two important respects. First, the punishment was imposed
exogenously by the experimenter, rather than voluntarily administered by players
themselves. Second, administration of punishment required no cost from the players.
These two features of punishment in the first study are problematic for generalizing the
results beyond this particular enforcement mechanism. When players are required to pay
a personal cost to impose penalties, the likelihood of punishment of free-riding may be
less than that expected when the experimenter acts as requiter. The direct effect of
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punishment may thus be reduced when the administration of punishment is costly.
Consequently, the expectation that other people will cooperate to avoid punishment may
also be reduced. As a result, the promotion of cooperation through the indirect effect
would be reduced
We conducted a second study to examine whether the indirect effect of
punishment observed in the first study would be replicated under a different
enforcement mechanism. In the second study, players decided how much personal cost
to bear in order to administer punishment to other players who fail to contribute. In
addition, we decided not to use the term “punishment” in the second study. Instead, we
choose to use the neutral word “reduce,” in order to avoid eliciting normative behaviour
associated with the term “punishment.”
The use of the endogenous punishment mechanism forced us to give up
measuring the pure direct effect of punishment as we did in Study 1. In the first
experiment, participants in the direct effect condition were informed that the other two
players were unaware of punishment at all. In Study 2 however, the other two players
were aware of the existence of punishment because they were able to deliver
punishment to the participant in the direct effect condition. Participants in the direct
condition in the second study thus face players who may be affected by indirect effect
of punishment, since other players face someone (the participant in the direct effect
condition) who can be punished. That is, participants in the direct effect condition in the
second study may be affected by the expectation of indirect effect that may enhance
other players’ cooperation—we may call this doubly indirect effect of punishment. We
decided to run the endogenous punishment mechanism despite the inability of
measuring purely direct effect mentioned above, since the merits of the new design
outweigh this potential problem. Furthermore, this doubly indirect effect of punishment
should work against our hypothesis concerning the operation of indirect effect, because
the test of indirect effect now involves cooperation in the combined effect and
“inflated” (due to the doubly indirect effect) level of cooperation in the direct effect
condition.
3.1. Methods
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A total of 144 freshmen (72 men and 72 women) at Hokkaido University in
Japan participated in this experiment for monetary rewards. All participants played the
same one-shot, three-person PD game used in the first study. Each member of a three-
person group was asked to contribute some portion of their endowment of 800 yen for
other group members. Each of the other two players received the amount the player
contributed.
Participants were randomly assigned to one of three conditions (n = 48 in the no-
punishment condition, 48 in the direct effect condition, and 48 in the combined effect
condition). Three of the participants were removed from the analysis because their
responses to post-experimental questions made it clear that they failed to comprehend
the instructions.
4
The use of an endogenous punishment system forced us to use “extra”
participants to avoid deception. Participants in the direct effect condition were the only
potential targets of punishment in their group. The other two participants in their group
did not face the possibility of receiving punishment. They were informed that
punishment option existed in their group. Further, one of the two was given a chance to
punish another player (the participant in the direct effect condition). These features
disqualified them as players in the no-punishment condition. We did not use these
“extra” participants in our hypothesis testing, since they were not relevant to our
hypotheses.
Players in the no-punishment condition constituted a group in which no one
faced punishment. The monetary payoff for each participant in the no-punishment
condition is given by equation (1). Players in the remaining two conditions were
informed that they might be punished by other players. We introduced a system of
punishment in which one participant could be punished only by one other participant in
order to make punishment compatible across the two punishment conditions. If we
allowed both of the other two participants to punish the participant in the direct effect
condition, he or she would be subject to punishment by two individuals. In contrast, no
participant in the combined effect condition was the sole target of punishment by two
individuals simultaneously, since each of the other two participants had two potential
targets to choose from. As a result, participants in the direct effect condition faced twice
as strong punishment as those in the indirect effect condition. This problem was avoided
by restricting the number of potential punishers in the direct effect condition to one.
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Remember that the group for the direct effect condition included the potential target of
punishment, D1, and two “extra” participants; one of the two, DE1, was given an
opportunity to punish D1, whereas the other, DE2, did not have such an opportunity.
Only the sole target of punishment in this group, D1, qualified for the direct effect
condition; the other two, “extra” participants were included in this group to avoid
deceiving the participants.
The monetary payoff for the player D1 in the direct effect condition is given by,
)3(......................................................................2
11
*
p
DD
−
=
π
π
where p is the amount of money that DE1 pays to punish D1. Player D1 in the
direct effect condition may be punished only by DE1. Since D1 did not have an
opportunity to punish another player, Eq1uation 3 does not include cost of punishment.
Participant C1 in the combined effect condition was a target of potential
punishment by C2, C2 by C3, and C3 by C1. Therefore, the monetary payoff for each
participant in the combined effect condition is given by,
)4....(............................................................2
*
ikjiii
pp −−=
π
π
where j i, i k, k j and pik is the amount of money that group member i
pay to punish group member k.
After all participants decided how much to contribute in the three-person PD
game, each participant in the combined effect condition (and the extra participants in the
direct effect condition) was informed of how much the target of his or her punishment
contributed. Then, they were given an opportunity to reduce the earnings of that
member. They were told that monetary costs were required to use the option; each yen
the participant paid reduced the target member’s earnings by two yen. The maximum
amount they could pay to reduce another’s earnings was 200 yen, the amount they were
paid before the experiment as a show-up fee (in addition to the endowment of 800 yen
they were given in the experiment). After deciding how much to pay to reduce the
earnings of that member, all participants completed a post-experimental questionnaire.
Finally, they were informed how much they earned in the PD game and, if they were
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subjected to punishment, how much their earnings were reduced. Finally, participants
were paid their earnings individually, less the penalty, and dismissed.
3.2. Results
We found no main or interaction effects involving the sex of the participants and,
therefore, data was pooled across sexes for all subsequent analyses.
Cooperation. As shown in Fig. 2, the results of the second study largely
replicated those of the first study. On average, the contribution level was lowest (237.71
yen, SD = 264.56) in the no-punishment condition, highest (414.13 yen, SD = 256.13)
Fig. 2: Direct and indirect effects of punishment in the second study. The left bar
estimates the base level of cooperation (sum of contribution) that occurs when free-riding is not
punished. The darker portion of the middle bar (85.91 yen) represents the direct effect of
punishment – cooperation over and above that observed in the no-punishment condition. The
right bar illustrates the combined effect of punishment (direct and indirect) on cooperation; the
darker portion (90.73 yen) represents the contribution level over and above that observed for
the direct effect of punishment (i.e., the indirect effect of punishment). Error bars represent
standard error.
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in the combined effect condition, and intermediate in the direct effect condition (323.62
yen, SD = 240.95). We used the same set of regression analyses used in Study 1 to
examine, first, whether punishment had a positive overall effect on cooperation and,
second, whether the predicted indirect effect manifested. Column 1 in Table 2 includes
only dummy 1. The significant effect for this dummy variable in Column 1 represents
the difference in cooperation level between the no-punishment condition and the two
punishment conditions combined. As was the case with exogenous punishment, the
results of Study 2 clearly show that endogenous punishment can increase cooperation
level even in a one-shot game. The dummy variable for the indirect effect was then
added to the regression equation (Column 2) to decompose the combined effect of
punishment into two components: the direct and indirect effects. In Column 2, either
dummy 1, representing the direct effect (the dark portion of the bar in Figure 2 for the
direct effect condition), or dummy 2, representing the indirect effect (the dark portion of
the bar for the indirect effect condition) reached the statistical significance at α = 0.05.
These results demonstrate, first, that punishment has a positive effect on contribution,
and second, that the positive effect of punishment can be decomposed into direct and
indirect effects of roughly equivalence sizes, although each of the effect was not as
strong as in the first study.
Table 2: The effects of anticipated punishment on cooperation in the second study.
Regression analysis contribution on two dummy variables.
Variables (1) (2)
Dummy 1 130.79
(45.48)
P = .005
85.91
(52.15)
P = .102
Dummy 2 . 90.73
(52.71)
P = .087
Constant 237.71
(36.94)
P < .0001
237.71
(36.68)
P < .0001
N 141 141
R
2
0.06 0.08
Standard errors in parentheses.
Expectations of other players’ contributions were also similar to the pattern
observed in the first study. We measured participants’ expectations using the same post-
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18
experimental question used in the first study. The average expectation was 370.65 yen
(SD = 182.75) in the combined effect condition, 286.17 yen (SD = 172.17) in the direct
effect condition, and 236.04 yen (SD = 177.89) in the no-punishment condition. A
regression analysis using a set of two dummy variables (see the analysis of
contributions) indicated that the difference between the direct effect and the combined
effect conditions was significant (b = 84.48, t(138) = 2.29, p = .02), whereas the
difference between the no-punishment and the direct effect conditions (b = 50.13, t(138)
= 1.38, p = .17) was not significant.
Punishments delivered. Enforcement of punishment by participants was
relatively sparse, possibly because of the relatively high contribution levels of players
who were subjected to the threat of penalization, or perhaps because punishment was
costly. Only 26 % of the participants in the combined effect condition (12 of 46
participants) delivered some level of punishment. Those who punished spent an average
of 87.5 yen (SD = 62.25) to reduce another’s earnings. As in previous studies (Fehr &
Gächter, 2002; Falk, Fehr, & Fischbacher, 2005), punishment was more severe when
the target’s contribution level was less than the punisher’s. In this case, an average of
105.71 yen (SD=71.61) was spent on penalties to 39% of potential targets. When the
target of punishment contributed more than the punisher, an average of 62.00 yen
(SD=39.62) was spent on penalties to 18 % of potential targets5. The total cost of
punishment (i.e., the amount participants spent on punishment) was relatively small,
compared to the benefit of increased cooperation. On average, each participant
contributed 176.64 yen more in the combined effect condition than in the no-
punishment condition. This extra contribution generated a benefit of 176.64 × 2 =
353.28 yen for the other two members. That is, each participant generated a net benefit
of 176.64 yen (353.28 yen of total benefit for the cost of 176.64 yen), while spending an
average of 22.83 yen on punishment. Since punishment reduced the earnings of the
target by 45.66 yen, each participant in the combined effect condition was better off, on
average, than those in the no-punishment condition by 176.64 – 22.83 – 45.66 = 108.15
yen. In the direct effect condition, the participant’s average contribution level was
higher than that in the no-punishment condition by 85.91, thus producing an extra net
benefit of 85.91 yen. The matched extra participant spent an average of 22.34 yen for
punishment6. Thus, the overall benefit of punishment in the direct effect condition was
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19
18.89 yen. Supplementing the direct effect with the indirect effect thus made the
administration of punishment much more cost effective.
Other findings. “Extra” participants (DE1 and DE2) were used to avoid the use
of deception. They did not face threat of punishment, and yet, they knew that one of the
three players would possibly face punishment. Thus, their contributions may possibly be
influenced by the indirect effect of punishment. On the other hand, they were also aware
that two of the three players were exempt from punishment. This would make the
indirect effect much weaker than the one observed in the combined effect condition in
which all three members faced possible punishment. Their responses to the post-
experimental question concerning the expectations of the other players’ contributions
suggest that their average expectations were higher than those in the no-punishment
condition (236.04 yen). One of the two “extra” participants, the one who was given a
chance to deliver punishment (DE1) expected that the other two would contribute an
average of 326.46 yen (SD=206.40), while the other “extra” participant (DE2), who was
neither punished nor given an opportunity for punishment, expected 313.89 yen
(SD=126.96). Despite these heightened expectations, their contributions were not larger
(270.00 yen, SD=294.39 for DE1; 198.33 yen, SD=232.49 for DE2) than in the no-
punishment condition (237.71 yen). There results indicate the lack of an indirect effect
among those participants. We discuss the implications of this finding in the discussion
section.
4. Discussion
The results of the two experiments support our argument that the direct effect of
punishment is augmented by an indirect effect to enhance cooperation. This is evident
in the fact that the level of cooperation in the combined effect condition was greater
than that observed in either the no-punishment condition or the direct effect punishment
condition.
As described earlier, the indirect effect of punishment has long been overlooked
despite its importance in solving the second-order dilemma. Eek and his associates are
among the few who recognized the importance of the indirect effect—which they called
the “spill-over effect”—of punishment (Eek et al., 2002; Loukopoulos et al., 2002).
20
20
They found evidence of an indirect effect of punishment, but the indirect effect was
observed in their study only when the direct effect of punishment exogenously imposed
by the experimenter was strong enough to make cooperation a more profitable choice
than free-riding (i.e., when the size of the imposed penalty exceeds the cost of
cooperation). In this case, participants in their experiments cooperated at a higher level
when one of the other members of a 5-person group was under the threat of such strong
punishment than when no penalties were administered. However, their studies failed to
demonstrate that the direct effect of weak punishment—i.e., not strong enough to make
cooperation a more profitable choice than free-riding—is augmented by an indirect
effect. The current study is the first to demonstrate that the direct effect of weak
punishment, which by itself is not strong enough to make self-regarding people
cooperate, is augmented by an indirect effect.
Our success in demonstrating an indirect effect of punishment when the penalty
was less than the cost of cooperation suggests that the symbolic or social nature of
punishment (Blau, 1964; Masclet et al., 2003; Noussair & Tucker, 2005) may play an
important role in producing indirect effects. In the Study 1, we explicitly used the term
“punishment,” whereas Eek and associates (Eek et al., 2002) expressed their penalty as
a “fee of 1000 SEK for [choosing non-cooperation]” (p. 809). When participants
encountered the term “punishment” in the instructions in our first study, they may have
taken note of the social implications of being a target of punishment, in addition to the
monetary cost imposed by the punishment itself. Recognition of the social implications
of punishment then may have made them more aware of social norms and obligations
for cooperation, and of the fact that others also operate under the normative pressure for
cooperation. This could in turn have strengthened the indirect effect of punishment.
This seems to be a reasonable account for the difference between our findings in the
first study and those reported by Eek and associates. However, we replicated the same
effects in the second study in which the term “punishment” was not used. The use of the
term “punishment,” thus, is not a necessary condition for the indirect effect of
punishment. On the other hand, there is a further possibility that the social implications
of punishment may have played an important role in enhancing the indirect effect. It is
possible that the inter-personal nature of endogenous punishment used in Study 2 made
the social nature of punishment—that is, the fact that punishment is something others
21
21
would want to enforce—salient to the participants. Whether or not the social aspects of
punishment are necessary for the indirect effect of “weak” punishment is an important
topic for future studies.
Another topic for future studies is the lack of indirect effects observed among
the “extra” participants in the second study. We used these participants mainly to avoid
the use of deception in the direct effect condition. That is, one of the two “extra”
participants, D
E1
, punished the “real” participant, D
1
, in the direct effect condition,
while he or she was not subject to punishment. Another “extra” participant, D
E2
, knew
that D
E1
could punish D
1
. In short, they knew that one of the other two players was
subject to punishment, and thus, would possible improve his or her cooperation level.
This might produce an indirect effect. On the other hand, the presence of another player
who was immune from punishment might have discouraged cooperation. Given the
finding by Kurzban, McCabe, Smith, & Wilson (2001), that conditional cooperators are
sensitive to the presence of non-cooperators, the presence of the immune player is likely
to prevent the indirect effect of punishment from taking place. Another possible
explanation for the lack of an indirect effect among these “extra” participants is that
indirect effect of punishment augments the weak direct effect of punishment, rather than
taking place by itself in the absence of a direct effect. That is, the nature of the indirect
effect is supplementary. Whether the indirect effect of punishment emerges by itself, or
requires the presence of a direct effect, is an important topic for future studies.
The indirect effect of punishment was suggested originally by Hobbes in the 17
th
Century (Hobbes, 1651). It is a popular misconception that Hobbes was an advocate of
the central authority forcing unwilling subjects to disarm (i.e., to use the direct effect of
punishment to force people to cooperate) (Kavka, 1983; Taylor, 1976; Yamagishi,
1992). Instead, his argument was focused more on the indirect effect of punishment; the
Leviathan (the central authority) playing the role of reducing fear of exploitation among
those who prefer Peace to War such that they can safely disarm themselves (i.e.,
cooperate) without fear of being exploited by those who don’t. The current study is the
first study to demonstrate experimentally the importance of the indirect effect as
implied by Hobbes’ view in Leviathan; punishment is a guarantor of Peace, not
(strictly) its enforcer. We have confirmed experimentally that the boost to cooperation
commonly observed in studies of punishment is better understood as a consequence of
22
22
two separate influences, one altering the payoffs associated with cooperation and
defection (the direct effect) and the other enhancing the expectation of cooperation by
others (the indirect effect).
The role of the indirect effect of punishment is argued to play a particularly
important role in the maintenance of common pool resources through voluntary
establishment of social institutions that monitor and sanction their members.
Researchers of resource management have alluded to the complementary nature of the
direct and indirect effects in field studies of common resources (Dietz, Ostrom, & Stern,
2003); while not ruling out the importance of the direct effect of punishment, they have
argued that “ruling by the sword” alone is insufficient to convince people to behave in a
mutually beneficial manner (Bewley, 1999; Gardner, Ostrom, & Walker, 1990; Ostrom
et al., 1992). This is because the key to a successful sanctioning system is the consent of
the people under its regulation (Hardin, 1968); voluntary acceptance assures that those
who are regulated want to cooperate, thereby enhancing the efficacy of punishment with
the indirect effect. We further suspect that factors such as ideology and shared beliefs
also play a positive role in raising expectations that others act cooperatively and,
consequently, accentuate the power of the indirect effect. The efficacy-enhancing role
of the indirect effect should be pronounced in social institutions perceived to be strong
and legitimate. While the direct effect depends more on the actual controlling power of
a social institution, the indirect effect depends more on the conviction that other
members believe in the legitimacy and efficacy of punishment. A sanctioning system
supported by a shared belief system should, thus, be more effective than the same
system dependent on the “sword” alone. An efficacious sanctioning system supported
by beliefs about its legitimacy would function well to induce people to comply,
transforming beliefs into reality; such a system could be self-sustaining (Aoki, 2001).
ACKNOWLEDGEMENTS
We thank Paul Wehr and Mark Radford for their comments on earlier versions
of this manuscript, Mai Kasahara for her help in running the experiment, and our
colleagues at Hokkaido University for letting us recruit potential participants from their
23
23
classes. The research reported in this paper was supported by grants from The Japan
Society for the Promotion of Science.
FOOTNOTES
1
One participant in the combined effect condition thought that only one participant
faced the possibility of punishment, and another in the direct effect condition thought
that the other two members also faced the possibility of punishment.
2
We randomly administered punishment with a probability of 20 percent when a
participant in the combined effect condition failed to contribute their entire endowment
of 800 yen. No punishment was administered in the no punishment condition or in the
direct effect condition.
3
When, for example, four participants were involved in a session, two participants, N
1
and N
2
, were assigned to the no-punishment condition, and the other two, D
1
and D
2
, to
the direct effect condition. For calculating rewards for N
1
and N
2
, either D
1
or D
2
was
randomly selected as a member of their group. For either D
1
or D
2
, the other two
members were N
1
and N
2
. Each of the four participants was thus a part of a three-person
group.
4
Two participants in the combined effect condition believed that only one of the other
two participants faced the possibility of punishment, and one participant in the direct
effect condition believed that another member also faced the possibility of punishment.
5
While punishment of cooperators in this study seems to be rather high, punishment of
cooperators by defectors was also substantial, 34%, in Falk, Fehr, & Fischbacher’s
(2005) study.
24
24
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