Carrots and sticks: new evidence in public goods games with heterogeneous groups

Standard public goods games often assign group members the same marginal per capita returns to public goods production, but in reality group members facing differential individual returns often must collaborate to produce a public good. This paper uses a laboratory experiment to investigate the comparative efficacy of punishment and reward in heterogeneous groups. Punishment and reward are implemented by allowing every member to incentivize other members at a cost. Contrary to the common belief that punishment is more effective than reward, I find that reward increases group contributions and efficiency, but punishment does not. Reward increases cooperation because all members are happy to reward cooperators. Punishment is ineffective because high-benefit members assign antisocial punishment toward others, whereas low-benefit members refrain from punishing other low-benefit members.