No SDES-2014-13
Title A theory of sanctions: Objectives, degree of heterogeneity, and growth potential matter for optimal use of carrot or stick
Author Yoshio Kamijo
Abstract While most economic literature on punishment and reward follows an experimental study on a symmetric version of a public goods game, we theoretically study sanction institutions by focusing on an asymmetric public goods game. Using a model for a private-value all-pay auction, we find that (1) the reward (punishment) is more effective to motivate people with greater (less) ability than median ability, (2) to improve the total effort, the reward (punishment) is better for more (less) heterogeneous people, and (3) reward tends to be optimal in the long run under the dynamics of group diversity change caused by enforced sanctions.
Revised version published in Journal of Economic Behavior & Organization (Title: "Rewards versus punishments in additive, weakest-link, and best-shot contests")