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

Author(s)
Christian Koch, Nikos Nikiforakis, Charles Noussair
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.

Organisation(s)
Department of Economics
External organisation(s)
New York University Abu Dhabi, University of Arizona
Journal
Journal of Economic Behavior & Organization
Volume
188
Pages
307-321
No. of pages
15
ISSN
0167-2681
DOI
https://doi.org/10.1016/j.jebo.2021.05.003
Publication date
08-2021
Peer reviewed
Yes
Austrian Fields of Science 2012
502057 Experimental economics
Keywords
ASJC Scopus subject areas
Economics and Econometrics, Organizational Behavior and Human Resource Management
Portal url
https://ucris.univie.ac.at/portal/en/publications/covenants-before-the-swords-the-limits-to-efficient-cooperation-in-heterogeneous-groups(7e540991-fcb5-430e-9176-b13726c4bf86).html