July 2005

IZA DP No. 1646: The Economics of Altruistic Punishment and the Demise of Cooperation

published as "The economics of altruistic punishment and the maintenance of cooperation" in: Proceedings of the Royal Society B -Biological Sciences, 2008, 275 (1637), 871-878

Explaining the evolution and maintenance of cooperation among unrelated individuals is one of the fundamental problems in biology and the social sciences. Recent experimental evidence suggests that altruistic punishment is an important mechanism to maintain cooperation among humans. In this paper we explore the boundary conditions for altruistic punishment to maintain cooperation by systematically varying the cost and impact of punishment, using a subject pool which extends beyond the standard student population. We find that the economics of altruistic punishment lead to the demise of cooperation when punishment is relatively expensive and/or has low impact. Our results indicate that the 'decision to punish' comes from an amalgam of emotional response and cognitive cost-benefit analysis. Additionally, earnings are lowest when punishment promotes cooperation, suggesting that the scope for altruistic punishment as a means to maintain cooperation is limited.