Legitimate punishment, feedback, and the enforcement of cooperation

In dealing with peer punishment as a cooperation enforcement device, laboratory studies have typically concentrated on discretionary sanctioning, allowing players to castigate each other arbitrarily. By contrast, in real life punishments are often meted out only insofar as punishers are entitled to punish and punishees deserve to be punished. We provide an experimental test for this 'legitimate punishment' institution and show that it yields substantial benefits to cooperation and efficiency gains, compared to a classic, 'vigilante justice' institution. We also focus on the role of feedback and we interestingly find that removing the information over high contributors' choices is sufficient to generate a dramatic decline in cooperation rates and earnings. This interaction result implies that providing feedback over virtuous behavior in the group is necessary to make a legitimate punishment scheme effective. © 2012 Elsevier Inc.