Long- and Short-term Exclusion in the Public Goods Game: An Experiment on Ostracism

Transcription

1 Long- and Short-term Exclusion in the Public Goods Game: An Experiment on Ostracism Sabine Neuhofer a, Bernhard Kittel a, a Department of Economic Sociology, University of Vienna, Austria August 2015 Abstract We examine the effect of short and irreversible exclusion on cooperation in a public goods game, using a laboratory experiment. The starting point is the proposition of Hirshleifer and Rasmusen (1989) who claim that the duration of the exclusion does not have an effect on the behavior of individuals. Findings are, that in a public goods game using short exclusion, subjects contributed more and the efficiency was higher compared to a standard public goods game. In a public goods game using irreversible exclusion, the contributions and efficiency were even higher. The findings of this experiment support the idea that ostracism, and the threat of it, are an effective way to enhance cooperation in a public goods environment, and that the duration has different effects on contributions and efficiency. Keywords: Ostracism, Public Goods Game, Experiment Corresponding author. Department of Economic Sociology, University of Vienna, Oskar-Morgenstern- Platz 1, A-1090 Wien, Austria, bernhard.kittel@univie.ac.at.

2 1 Introduction In ancient Greece Ostrakismos was a political device used to protect the harmony and peace of society (Charness & Yang, 2014). An individual potentially threatening social order was sent to exile for ten years by majority vote. In modern usage, ostracism is thus defined as the practice of excluding disapproved individuals from interaction with a social group (Hirshleifer & Rasmusen, 1989, p 89). Imprisonment, enslavement and death are the most severe forms of ostracism (Masters, 1984), whereas being collectively impolite or refusing to talk to someone may be milder forms. However, ostracism is not only costly to the targeted individual, also the remaining group is affected, because the excluded individuals will not contribute to the public good. As a consequence, the attainable maximum is reduced. If ostracism were a costless way to make threats and promises credible, the social dilemma would be easily solved. But ostracism is usually costly to the group because expelling a member hurts not just the outcast, but indirectly all the remaining members (Hirshleifer & Rasmusen, 1989, p 89). Depending on the harshness of the exclusion, an individual can be excluded for just one single interaction, to a longer period of time, or ultimately be irreversibly excluded. Maier-Rigaud, Martinsson, and Staffiero (2010) examine long-term punishment such as the exclusion of a team member in production settings for the remaining time of a particular project. Also, an individual who committed a severe crime may receive a life sentence. Against this view, Charness and Yang (2014) argue that most exclusions are not irreversible, in the sense that individuals usually have the option to connect to another social group. If an individual is fired by one company, it may start working at another company on the next day. We perceive both forms of exclusion to be relevant in a society. Hirshleifer and Rasmusen (1989) have been the first suggesting ostracism as the solution to the problem of coordination in a repeated N-person prisoners dilemma. They conclude 1

3 that variations in the duration of the exclusion or the cost imposed on the excluded actor will change neither behavior nor efficiency, as the equilibrium is the same in each round of exclusion. On the basis of the theoretical work of Hirshleifer and Rasmusen (1989) several experiments have been designed to test their propositions, varying the duration of exclusion, the cost for exclusion and the excluded, or the voting mechanism. Most of those experiments use a standard public goods game, in design close to the one of Fehr and Gachter (2000) but often with different group sizes, a difference that reduces comparability. This paper contributes to the existing literature by challenging the proposition of Hirshleifer and Rasmusen (1989) that the duration of the exclusion will not influence behavior. Instead, we argue that the harshness of irreversible exclusion exerts a stronger threat and thus enforces a higher willingness to behave as expected by the group. Also, the effect of different types of ostracism on the efficiency of a group is not explicitly discussed by Hirshleifer and Rasmusen (1989). We argue that differences in efficiency are the result of differences in threat and, as a result, differences in the impact on the remaining group. We then directly compare short and irreversible exclusion within one experimental design. 2 Related Literature The fact that cooperation in public goods games (PGG) can be facilitated through sanctions is well established Chaudhuri (2011). But there are also downsides to this method of enhancing cooperation. First, anti-social punishment often occurs, as the punished low-contributors may seek revenge by punishing high-contributors, who are the most likely sources of their punishment. Second, the general welfare of a group may be diminished through costly punishment, as actors have to pay for the execution of a punishment and usually more points are taken from the punished individual. In total, 2

4 contributions may be higher, but the overall welfare not necessarily is. Depending on the parameters used for the ostracism mechanism, cooperation may be fostered and the overall welfare of the group increased. This should also apply to the institution of ostracism. As mentioned, the duration of ostracism can be varied. Both versions, short exclusion for one round and irreversible exclusion have been investigated. First we will concentrate on experiments using irreversible exclusion. In the experimental designs of Cinyabuguma, Page, and Putterman (2005) and Maier-Rigaud et al. (2010) ostracism is irreversible, but the cost for excluded subjects is quite different. The group suffers from the exclusion of a member in both experiments, as the potential maximum outcome diminishes with group size. In the experiment of Cinyabuguma et al. (2005), using large groups of 16 subjects, actors are excluded by majority vote, with a small cost imposed on voting. Votes are cast on the basis of full information and costly only when the exclusion is actually executed. Excluded actors are no longer permitted to play the public goods game in the original group, but transferred to a less efficient PGG, receiving only half of the original endowment and barred from the option to ostracize other group members. In the experiment of Maier-Rigaud et al. (2010) the cost of exclusion is less severe in terms of payoff, but more severe in terms of participation. While excluded actors still receive their original endowment, they are not permitted to participate in any PGG. Further, no fee is imposed on voting. The basic setting of the game is principally the same, but with smaller groups (6 subjects). The findings of both experiments are rather similar, but the effects are weaker in the one of Maier-Rigaud et al. (2010), as the exclusion is less harsh in financial terms. In both papers higher contributions in treatments with ostracism and higher average payoffs are reported. The threat of exclusion alone, that is, unsuccessful exclusion, is also found to enhance contributions. Mainly subjects with low contributions are excluded, and due to the requirement of majority voting no high contributors were (anti-socially) excluded. 3

5 Other forms of ostracism can be reversible. In the experimental design of Masclet (2003) actors can only be excluded for one round, with one vote being sufficient (in a group of four). The setting is compared to work groups in the real world, where colleagues may exclude others from additional activities after work if the behavior of a particular member does not fulfill group expectations. On the next day, work is resumed together and the excluded individual is reintegrated. Findings are that the threat of exclusion (in sense of exclusion being possible) enhances cooperation significantly, but the effect immediately disappears when the option is removed. The addition of a cost on voting leads to less exclusions. In general, very few actors were excluded. Another study focusing on one-round exclusion is the experiment of Kerr et al. (2009), who combine verbal and actual exclusion. In addition, the number of non-cooperative players was controlled for, in order to explore the number of non-cooperative players needed to spoil cooperation. One of those bad apples is enough to spoil the barrel (Kerr et al., 2009) without ostracism. With ostracism those actors are excluded and tend to alter their behavior when allowed to return to the group. One argument for reversible exclusion is that actors may not only have the opportunity to reconnect to the original group, but to also connect to a different group or even leave the original group on their own account. Charness and Yang (2014) simulate a highly mobile society in their experimental design and allow participants to ostracize other members, exit a group at free will, and whole groups to merge, which is rather hard to control experimentally. Every three periods actors were permitted to move and vote. Contributions and efficiency were higher in mobile societies, compared to the standard PGG, but comparison to other experiments using ostracism is not possible in a direct way. 4

6 3 Theory and Hypotheses Hirshleifer and Rasmusen (1989) contributed a theoretical paper to the field in which they discuss and analyze the effect of ostracism in a N-person prisoners dilemma. 1 To our knowledge this is the first paper approaching the problem of cooperation using the mechanism of ostracism. In a prisoners dilemma, subjects have the choice between cooperation in producing a collective good or defection. By cooperating, more of the desired good will be produced, by defecting less is produced, but the personal gain is larger than under cooperation if the other subject defects. Hirshleifer and Rasmusen dubbed the opportunity to expel a member to blackball someone. This can happen in each period before participation in the actual prisoner s dilemma. A single vote is enough for the exclusion to be executed, but the exclusion only lasts for one period unless the subject is excluded again in the next period of blackballing (in which the expelled subject also cannot participate). Blackballing itself is not directly costly but being blackballed is costly insofar as there is a cost imposed on non-members for being outside of the group. Therefore, it is always better to be included, even if nobody cooperates in producing the collective good. How, then, must an agent behave to avoid exclusion? The authors introduce several assumptions concerning the dilemma situation and the ostracism mechanism (cf. Hirshleifer & Rasmusen, 1989, p. 90): 1.) free rider problem 2.) aggregation economies 3.) no aggregation economies without cooperation 4.) excludability of resources from nonmembers 5.) costless enforcement of exclusion. Further assumptions are: 6.) ostracism only lasts one period 7.) to be ostracized, a player need be blackballed only by one member 8.) a player can blackball any number of other players. If the cost for being ostracized is large enough, cooperation can be enhanced until the second to last period. Hirshleifer and Rasmusen (1989, p. 93) prove the strategy banishment to be a subgame perfect equilibrium in all periods. This strategy comprises of: always cooperating 1 A public goods game is a type of N-person prisoners dilemma; the incentive structure therefore the dilemma is the same in a public goods game and a prisoners dilemma. 5

7 until the second-last period and always blackballing defectors; further do not blackball without, and do not restrain from blackballing if provoked, and blackball those who did not blackball a defector previously. They also conclude that in a N-person prisoners dilemma using an ostracism mechanism, the exclusion of one or more members will have the same effect, irrespective of the harshness of the exclusion. Varying the duration or the cost imposed on the excluded subject should therefore neither change the individual behavior, nor the efficiency resulting from it. It is this claim which we challenge in this paper. In the following first the contribution behavior of subjects will be addressed. Second, the effect the institution of ostracism has on this behavior will be discussed. Third, the efficiency of the group will be addressed, as it is the result of the behavior of subjects under the institution of ostracism. 3.1 Contributions and Cooperation In most behavioral experiments on cooperation in a social dilemma subjects are assumend to maximize profits (Ledyard, 1995; Chaudhuri, 2011). The strategy of such a rational individual is to contribute nothing at all to the public good at all times and keep all endowments in private. If all subjects assume others to be profit maximizers as well this is the best strategy, not only for the last, but for all periods of a game. But then the public good will not be created, even though it were more beneficial for all group members if all contributed to the public good. This logic also holds true for the treatments using exclusion. Under the same assumptions as above, no rational payoff-maximizing individual will contribute to the last stage, as this will have no consequences. Likewise, rational and profit maximizing subjects nobody will vote for the expulsion of another member in any period, since the expulsion of a group member is costly (directly and indirectly). But even without voting being costly, excluding someone is never rational under another assumption: the possibility that someone else might contribute anything, 6

8 even by accident (consider the for example the trembling-hand refinement of the Nash equilibrium of Selten (1975) as Maier-Rigaud et al. (2010) do). Being excluded, in general, no matter in which period and for how long, is always worse than being included in the group. This is not only true when there is some cost imposed on the endowment the excluded subject receives. Also, the excluded subject cannot profit from the public good. This holds for both short and irreversible exclusion. Never contribute and never exclude, therefore, is the subgame-perfect equilibrium under the assumption of rational profit-maximizing subjects Maier-Rigaud et al. (2010, p. 390). In contrast to this theoretical expectation, studies have shown that not all subjects are rational profit-maximizers, but contribute more than nothing and are even willing to sanction each other, even when sanctioning is financially costly and therefore not rational under standard assumptions (c.f. Ostrom, Walker, & Gardner, 1992; Fehr & Gachter, 2000). Previous research led to the insight that there are different types of players who vary in their social preferences and/or their beliefs about other players (and their actions, preferences and beliefs). Heterogeneous preferences and beliefs can lead to a change in behavior that deviates from the game-theoretic prediction of free-riding in particular settings. Several experimental investigations suggested that many participants behave as conditional cooperators whose contribution to the public good is positively correlated with their beliefs about the contributions to be made by their group members (Chaudhuri, 2011, p. 3). So under the assumption of heterogeneuous players (e.g. Fischbacher, Gächter, & Fehr, 2001) some contributions will exceed zero and, if possible, subjects deviating from the group norm will be punished. The norm of how much a member has to (or how little a member is allowed to) contribute is endogenous and depends on the group norm and the types of subjects it consists of. It could range from zero to full contribution. But what will these norms look like and how can exclusion be avoided? Full contribution might be one way, but this strategy is only compatible with an unconditionally social type of player. 7

9 Previous research has shown that it is always the lowest contributor who is excluded, sometimes jointly with the second-lowest contributor (Cinyabuguma et al., 2005). The best strategy to avoid exclusion while not giving up all selfish and profit maximizing goals is to contribute slightly more than the lowest contributor. Assuming this to be common knowledge, contributions will rise from period to period in an upward spiral, compared continually sinking contributions in a standard public goods game without exclusion, as every subject tries to surpass the smallest contributor by the smallest possible amount. We thus expect higher contributions under ostracism compared to a public goods game without any sanctioning institution. H1a: Cooperation will be higher in an environment where exclusion for one period is possible compared to an environment without the possibility to exclude others. H1b: Cooperation will be higher in an environment where irreversible exclusion is possible compared to an environment without the possibility to exclude others. 3.2 Exclusion Nikiforakis (2008) has shown that the cost-effectiveness of punishment does have an influence on behavior. Any punishment needs to be effective, but at the same time it has to be affordable in order to exert influence. Considering exclusion as a specific form of punishment, the harshness could therefore make a difference. We suggest that cooperation will be higher in an environment where exclusion is irreversible compared to an environment using exclusion that only lasts for one period. The cost for ostracized subjects is higher, since exclusion is longer, than in an environment using a mechanism of short ostracism, where subjects receive the full endowment and the right to participate after one period of exclusion. A rational subject could anticipate the cost of being excluded irreversibly and, as argued above, raise his or her contributions in order to avoid exclusion. Cinyabuguma et al. (2005, p. 1427) provide evidence for the existence of an anticipation effect in their experiment, where contributions in the treatment 8

10 using exclusions were significantly higher in the first period, compared to the baseline treatment without exclusion. In the first period of a PGG a subject has to decide on the allocation of her endowment, without knowing the preferences of the other group members. Contributing too little can lead to exclusion, but contribution more than necessary forfeits profit. In the long run it would be worse to contribute too little and be expelled in the first period than contributing much above the minimum of the group norm and not being able to free-ride on the others contributions. To avoid exclusion, a subject needs to behave according to the group norm. Since being excluded in the irreversible treatment is more costly than in the short-term setting, the threat might be perceived to be greater and the contributions therefore start higher. Against this argument, Tsebelis (1990) argues, however, that the harshness of the punishment alone does not prevent the commitment of a crime. According to his analysis it is the probability of detection which influences the crime rate negatively. However, when the probability of detection is held constant (in our case at 100%), the influence of the harshness of the punishment can be isolated. In this case, the threat of a higher punishment, i.e. irreversible exclusion versus short-term exclusion, should have more effect on the behavior of subjects. H3a: The harsher the consequences of exclusion, the higher cooperation will be. Cooperation will be higher under the threat of irreversible exclusion compared to reversible short-term exclusion. Following this logic, efficiency should also be higher under irreversible exclusion as a consequence of higher contributions. If a subject was excluded irreversibly in an early period, however, she is lost for the group for the remaining periods and thus the overall profit of the group is reduced. As Hirshleifer & Rasmusen note: ostracism is usually costly to the group because expelling a member hurts not just the outcast, but indirectly all the remaining members (1989, p. 89). Also the excluded subject only receives a 9

11 fraction of the endowment and cannot contribute or profit to the public good for a longer time than a subject excluded for only one period. When a subject is excluded irreversibly, the number of periods spent in exclusion negatively influences the efficiency of a group. Charness and Yang (2014) explicitly note that remorse and redemption is a natural characteristic of society and argue for reversible over irreversible exclusion. Subjects can learn from the received punishment and adjust to the norm of the group, when allowed to reintegrate to the group. Leaning on the findings of others (see for example Cinyabuguma et al., 2005; Masclet, 2003; Maier-Rigaud et al., 2010) and the assumptions discussed above, the threat of exclusion is expected to enhance contributions and therefore efficiency, compared to an environment without exclusion. Therefore, we expect a higher efficiency under short exclusion. H3b: Efficiency will be lower when subjects are excluded irreversibly compared to efficiency under short-term exclusion. 3.3 Efficiency and Total Profit Efficiency is the cumulation of all profits of all group members of the entire public goods game. It can also be expressed as the welfare a group is able to obtain. When contributions are higher under the threat of exclusion, efficiency should be higher as well. Considering costly punishment, efficiency does not necessarily rise with contributions, as the sender and the receiver of the punishment lose profit and therefore the overall efficiency can be diminished despite higher contributions (cf. Nikiforakis, 2008). Even though there is a cost imposed on excluded subjects, in the study by Cinyabuguma et al. (2005) efficiency is higher when the profit of all excluded subjects is also considered in the equation. Also Maier-Rigaud et al. (2010) report higher efficiency of groups under the ostracism treatment. Therefore, we expect also expect higher efficiency for groups under the ostracism treatments. H2a: Efficiency will be higher when it is possible to exclude group members for one 10

12 period, compared to an environment without exclusion. H2b: Efficiency will be higher when it is possible to irreversibly exclude group members for all remaining periods, compared to an environment without exclusion 4 Experimental Design Our design builds on the experiments of Masclet (2003), Cinyabuguma et al. (2005), and Maier-Rigaud et al. (2010) and combines features of exclusionary mechanisms of each individual design. Further, four of five key assumptions of Hirshleifer and Rasmusen (1989) are implemented and their claim of no difference between exclusion mechanisms is tested. 4.1 Procedure The experiment is programmed in z-tree (Fischbacher, 2007) and has been administered at the Vienna Center of Experimental Economics (VCEE) at the University of Vienna. 2 Student participants were recruited using the ORSEE software (Greiner, 2004). Ten sessions of approximately one and a half hour were completed, where only one treatment per session was applied, in order to avoid contamination effects. In total 216 students participated in the experiment, which yields 12 groups for each treatment. On average participants earned e Upon arrival participants were randomly allocated to computer cubicles. Prior to the beginning, instructions on paper were handed out. Control questions about the mechanics of the game preceded the actual PGG. After the PGG participants were asked to complete a questionnaire on social demographics and a selection of questions from the European Social Survey (ESS). 2 Sessions were run in November 2014, December 2014 and January

13 4.2 Treatments Three treatments were implemented. The baseline treatment mirrors the design of Fehr and Gachter (2000), which was also used by Maier-Rigaud et al. (2010). The second and third treatment differ from the baseline only in the introduction of two different exclusion mechanisms. Treatment 1: baseline (Baseline, BL). In the baseline treatment six subjects are randomly assigned to a group, in which they remained for the entire session. One period of the session consists of 2 stages and ten periods are played in total. In the first stage each subject receives an endowment of 10 tokens(e), which she can either allocate to the private account or to the public good (C i ). In the public good the contributions of all group members are summed up ( alljc) and multiplied by a growth factor (g). This decision is made simultaneously and without communication. In the second stage subjects learn about the contributions of their group members, the size of the public good, the return he received from it and his cumulative profit. The individual profit from each period can be calculated as follows: y i = e C i + g allj C j (1) Subjects are informed about the calculation of profits before the experiment starts. Treatment 2: short exclusion (ShortEx, SE). Treatment ShortEx consists of three stages. The first stage is identical to the one of the baseline treatment. In the second stage each subject is informed about his profit from this period and about the individual contributions of all group members. On the basis of this information each subject can vote (v i ) for the exclusion of her group members. Voting is costly (k = 0.5) and a subject is excluded in case it receives three or more votes. After voting each subject proceeds to the third stage, where information about received votes, own exclusion, number of excluded subjects and the own cumulated profit are displayed. A subject having received 12

14 a majority of votes for exclusion will not participate in any of these three stages in the next period and a cost of exclusion (d = 5) is subtracted from her endowment of this period. In the period following the exclusion, the subject participates in all three stages as before. The cumulative profit of each subject can be calculated as follows: y i = P in (e C i k v i + g allj C j ) + (P t P in ) (e d) (2) where P in is the total number a subject played a period (i.e. not excluded), and P t is the total number of periods of the experiment. Treatment 3: irreversible exclusion (LongEx, LE). Treatment LongEx differs from treatment 2 only with respect to the exclusion mechanism. When a subject is excluded in this treatment, the exclusion lasts for the remainder of the session. Excluded subjects cannot participate in the PGG and receive a reduced endowment for each remaining period played by the group. The calculation of profit is the same as for treatment ShortEx. 5 Experimental Results We will first describe general findings and then present results of a linear regression on contributions. Description of general results We expected the the contributions to differ between treatments. In the baseline treatment the mean is 5.98, in treatment ShortEx it amounts to 7.17 (6.95) and in treatment LongEx to 8.01 (7.55). Values in parentheses are calculated on the basis of the total instead of the actual group size at the time of measurement. 3 Irrespective of the measurement mode, 3 There is some disagreement in the literature on the correct calculation of statistics is subjects are excluded during an experiment. We have calculated means with contributions of excluded subjects set to missing. In contrast, setting the contributions of excluded subjects to 0 would imply that no 13

15 the means differ significantly from each other (Wilcoxon ranksum test, p<0.01). Hence the option to exclude each other significantly enhances the willingness to contribute to a public good. The increase in contributions is strongest when ostracism is irreversible, which suggests that the severity of punishment indeed fosters cooperation. The standard deviation from the mean of contributions (over all periods) is highest in treatment Baseline (3.66), lower in treatment ShortEx (2.44) and lowest in treatment LongEx (2.9). This indicates that the contribution behavior converges in treatments using exclusion. The imposition of punitive mechanism appears to advance the process of finding a norm within a group (see Figure 1). Figure 1 about here Overall, Figure 2 suggests that subjects anticipate the threat of irreversible exclusion already in the first round of the game and start with higher contributions in order to avoid exclusion. In treatment Baseline contributions start at 5.71 in the first period, reach their maximum at 6.8 in the sixth and then drop to 3.92 in the last period. In treatment ShortEx contributions start at 5.88, reach their maximum of 7.8 (7.69) in period 4 and decline to 5.01 (4.88) in the last period (endgame effect). In treatment LongEx average contributions in the first period are 6.71, rise to reach their maximum of 9 (8.38) in period 7 and decline to 5.68 (5.12) in Period 10 (see Figure 2; net effect: solid lines, gross effect: dashed lines). This pattern suggests that the threat of short exclusion appears to be weaker: Although contributions increase as compared to the baseline treatment, subjects seem to be also concerned with avoiding over-contributing in the first period. This seems reasonable, as in case of exclusion they can adjust to the groups standards when returned to the group in the next period. individual can be excluded from the society and, therefore, should be considered in the computation of the mean. Setting the missing values to 0 yields the values reported in parentheses. 14

16 Figure 2 about here For the baseline treatment Figure 2 shows higher levels of contribution than has been reported in previous experiments for a larger number of periods after the first period before they start to decline (Fehr & Gachter, 2000; Chaudhuri, 2011). Partly, this is due to unusually high contributions in three out of the 12 groups exposed to this treatment. 4 For comparison, the dotted red line in Figure 2 shows average contributions in the baseline treatment, when the three groups with the highest contribution levels (means of 9.34, 8.87 and 8.35) are excluded. In this case, the mean over all periods in the baseline treatment is Figure 3 displays the raw treatment means with accompanying 95 percent confidence intervals. It shows that in this crude comparison only contributions in the LongEx treatment are significantly larger than in the baseline treatment for all periods in a session. Including more adequate controls, however, we will show that also the other differences in means are statistically significant. Figure 3 about here In terms of final profit the treatments only slightly differ in the mean across treatments, being in the baseline treatment, in treatment ShortEx and in treatment LongEx. The means differ significantly from each other only between Baseline and LongEx (Wilcoxon ranksum test, p<0.056). The highest standard deviation can be 4 We have explored potential explanations for the unexpected behavior in these groups in the baseline treatment. 44% of the subjects of the deviating groups study in the field of humanities, and additional 22% in other fields (music, art, law, sociology, etc.), whereas only 33% are in technical, natural sciences or economics. Summarized over all other groups, 31% are in the field of humanities, 53% are in technical, natural sciences or economics in other groups and 9% are in other fields. The deviating groups do not differer greatly in gender, as they have 44% of female subjects compared to 42%. On the trust index the deviating groups has a higher mean of 3.94, compared to Hence, there is some reason to suspect that the unusual behavior of these groups is at least partly related to their composition. 15

17 found in treatment LongEx (37.73), as well as the lowest income (min: 66.6; max: ). This shows the negative effect irreversible exclusion can have on an excluded subject in terms of total profit, generating a large difference between included and excluded subjects (see Figure 4). The highest minimum profit and the highest maximum (95.9; 246.3) and also the lowest standard deviation (30.21) were attained in treatment ShortEx. The threat of short exclusion seems to have a smoothing effect on total profit. The standard deviation of profits in the baseline treatment (35.29) is similar to treatment LongEx, as well as the maximum (239.6), the minimum however is higher (93.6). As mentioned above the group can be defined with or without excluded subjects in each period. In terms of the productivity of a society one can thus distinguish between the net (only considering included group members) and the gross effect (considering included and excluded group members) of exclusion. Including the excluded in the calculation of the highest possible output, it remains 100% across all treatments. Thus in the baseline treatment on average 76.6%, in treatment ShortEx about 78.8% and in treatment LongEx about 80.3% of the maximum possible productivity were reached. If excluded subjects are also excluded from the calculations, 82.8% are reached in treatment ShortEx and 88.3% in treatment LongEx. The most efficient group can be found in treatment ShortEx, achieving 97.2% of the possible maximum. The third and fourth productive group can also be found in treatment ShortEx (95.72%, 95.2%). On the second place is a group of treatment Baseline. Figure 4 The option to exclude other group members affects the behavior of subjects to some extent. How was this option used? In treatment ShortEx at most two members were excluded at the same time. Therefore, the minimum group size was four subjects. In total over all 12 groups subjects were excluded for one period 22 times (of 720 played 16

18 periods). In four groups nobody was excluded at any time of the game. Therefore, in eight groups 22 exclusions happened. In total 208 votes were cast. In treatment LongEx one subject per group was excluded at the maximum. 42 periods were played with a group size of 5 subjects. In five of 12 groups nobody was excluded at all, therefore, in total only seven subjects were excluded from their group. In total 91 votes were cast. It appears that harsher sanctions are chosen less often than less severe sanctions under the condition of total surveillance (7 compared to 22 individuals), but that the total number of periods in which a group was affected by the exclusion of a member is higher under irreversible exclusion (42 periods compared to 22). Considering the sequential setup of the experiment, an endgame-effect can be observed. In the last period contributions are significantly lower than in preceding periods. Towards the end contributions tend to drop in general in all treatments. Summarizing the descriptive results we find supportive evidence for hypotheses H1a, H1b and H3a. Average contributions are higher under short exclusion compared to the baseline treatment (H1a). Also, contributions are higher under irreversible exclusion compared to the baseline treatment (H1b). Comparing the harshness of exclusion we find significantly higher contributions under irreversible exclusion than under short exclusion (H3a). These findings hold considering net and gross contributions. Concerning the efficiency of groups in terms of total profit, the results support H2b, but not H2a nor H3b. Efficiency is higher under irreversible exclusion compared to the baseline treatment (H2b). The average efficiency does not differ between short exclusion and the baseline treatment (H2a), neither does it differ between short and irreversible exclusion (H3b). Over all, the distribution of total profit differs within the group, as a gap is produced between irreversibly excluded and included subjects, thus pulling the mean efficiency of a group downwards. 17

19 Ostracism and Contributions in the Public Goods Game In the previous section the behavior in treatments with and without a threat of exclusion was investigated and the threat was found to significantly influence behavior. In this section, we sequentially add possibly disturbing factors. We estimate four models. Model 1 includes only the treatment effect. Model 2 adds game-related variables. Model 3 amends the specification by sociodemographic variables. Finally, information on the trustfulness of participants is included in Model 4. All models include a set of period dummies accounting for the general trend in the data in order to focus on between-treatment effects. Game-Related Variables In Models 1 and 2, individual contributions were regressed on game-related variables only (i.e. variables influenced by or created during the experiment by the behavior of other group members or own behavior). The results of Models 1 and 2 strengthen the findings of the rank-sum test described in the previous section. The addition of the option to exclude other group members has a significant positive influence on contribution behavior (p < 0.001) in all models. Thus, subjects in treatment ShortEx and LongEx contributed more than subjects in the baseline treatment, and did so most in treatment LongEx, compared to the baseline treatment. This difference between treatment ShortEx and LongEx is statistically significant as well. The addition of control variables does not change the significance or the direction of the coefficient. The size of the coefficient is only slightly and inconsequentially changed. The experience of exclusion is only marginally significant in all models (p < 0.1) and the group size is marginally significant in model 3 (p < 0.1). Table 1 about here 18

20 Social Demographic Variables and Trust In Models 3 and 4 we added social demographic variables as controls. The field of study of the participants was coded into 5 groups (humanities, economics, technical studies, natural sciences, and a residual group containing diverse fields such as social sciences, law, music and others, which were too small for a separate group). The field of humanities was used as a reference category, as it is the largest one in this sample. Compared to students of humanities, those of economics, technical studies and natural sciences contributed significantly less. Male participants contributed significantly less than female participants, and the age of a participant also has a small negative effect on average contributions. When the trust index is added to Model 4, the negative effect of the field of study is weakened, as well as the effect of gender. Trustful people contribute significantly more to a public good, as they trust in others not to abuse their cooperation for free-riding. Adjusted R-squared is 0.12 for both Models 1 and 2. It reaches 0.16 in Model 3 and 0.19 in Model 4. Hence the fit of the model rises with the addition of control variables (Anova, p<0.001). Summarizing these results, we find a significant positive treatment effect for both treatments using exclusion. This finding is in line with both the expectations and the descriptive results. In particular, we find that the threat of long exclusion has a statistically significantly stronger disciplining effect that the threat of short exclusion. Further we find that an additional explanation for the behavior of subjects can be found in sociodemographic characteristics, such as the field of study or gender. Students of economics and of more technical or natural science related fields appear to contribute less, which suggests that students of these fields tend to be closer to the predicted behavior of a profit-maximizing subject than those is the humanities. 19

21 Summary The findings of the experiment are in line with the results of others in this field, when cooperation under a standard public goods game is compared to those using ostracism. Contributions are significantly higher in both treatments using ostracism and efficiency is also significantly higher in both exclusion treatments compared to the baseline treatment. Masclet (2003), Cinyabuguma et al. (2005) and Maier-Rigaud et al. (2010) found similar effects of the threat of exclusion on contributions, but all of them used different parameters concerning the mechanism of exclusion. The predictions of Hirshleifer and Rasmusen (1989), who proposed that the harshness of the exclusion does not influence cooperation, are not supported by our findings. In contrast, subjects do behave differently under the threat of short and irreversible exclusion. The direct comparison of short and irreversible exclusion shows that average contributions are higher under irreversible exclusion. Also the efficiency is higher under the threat of irreversible exclusion. The potential loss in efficiency caused by the irreversible exclusion of a subject does not undermine the welfare of a group. Even though the potential maximum output of a group is reduced through the exclusion of a subject, the efficiency is still higher on average, compared to an environment without ostracism. Short exclusion also causes average contributions and efficiency to rise, but slightly lower. On the individual level, total profits under short and irreversible ostracism differ. Whereas short exclusion leads to a more even distribution of profits, irreversible exclusion generates a gap between those who were ostracized and those who were included in the group. Also, individuals appear to handle different degrees of harshness of sanctioning different. Less subjects were excluded in the treatment with irreversible exclusion, which hampers the direct comparability of the direct effect of ostracism. It can be assumed, though, that the threat of a higher sanction alone leads to higher contributions and efficiency. The expected upwards spiral in contributions is found in both exclusion treatments, 20

22 but it is stronger under the threat of irreversible exclusion. The anticipation of the grim trigger of irreversible exclusion enhances cooperation faster and stronger than short-term exclusion. Cinyabuguma et al. (2005) and Maier-Rigaud et al. (2010) also concluded that irreversible exclusion is an effective way to enhance cooperation and still achieve higher welfare than in a standard environment. 6 Conclusion We contribute to the existing body of literature by comparing short and irreversible exclusion in a laboratory experiment. The design of the experiment is as similar to the existing ones as possible in order to facilitate comparability, but offers the possibility to compare the effect of different types of exclusions, with all remaining parameters being equal. Until this point, both the influence of the threat of irreversible and short-term exclusion have been tested in the laboratory, but only under different settings. By focusing on this difference we challenge the theoretical proposition of Hirshleifer and Rasmusen (1989), who claimed that the harshness of exclusion does not make a difference. Our results suggest that the harshness of exclusion does have a differentiating effect on the behavior of subjects. The difference can be attributed to the actual heterogeneity of subjects with respect to their adherence to the rationality assumptions on which the Hirshleifer-Rasmusen model rests. The effect of irreversible exclusion, and the threat of it, is stronger than the effect short-term exclusion has on contributions and efficiency. If it were possible to base decisions to exclude someone from a group on total information about the behavior of all group members, cooperation could be fostered. As in the real world, however, total surveillance is not possible (and probably not desirable), and the findings of this experiment need to be viewed in consideration of the availability of full information. The differences in the harshness of exclusion are more radical when considered in the 21

23 context of a society. When someone is excluded for a limited amount of time, she can learn from this experience and alter his or her behavior towards the one expected by the group. Say, someone does not pay her taxes and as a result is imprisoned for a year. This individual can show remorse and start paying taxes after the imprisonment and thus contribute to the society. If this individual were excluded irreversibly, no further contributions to the state (and thus its citizens) could be expected and the less could be produced by the remaining group. But if said individual resumed tax evasion, it would probably be better to restrain her from doing so, as annoyance with free-riding can lead others to the same behavior. Speaking about sanctions also brings financial sanctions to mind. Several experiments show the positive effect fees can have on cooperative behavior. But the findings of those experiments also pointed out the negative influence which those fees can have on the overall welfare of a group. When democratic decisions are made, the negative effect can be alleviated, as anti-social sanctions vanish and preferences of punishment are harmonized. As parameters are rather different between financial sanctions and ostracism, no direct comparison can be made, but we may consider the different implications they have. Financial sanctions mostly are a private matter, exclusion (in the worst case imprisonment) does not go unnoticed. So the threat of ostracism (of any duration) may be harsher on subjects, as their behavior is sanctioned more publicly. References Charness, G., & Yang, C.-L. (2014, June). Starting small toward voluntary formation of efficient large groups in public goods provision. Journal of Economic Behavior & Organization, 102, Chaudhuri, A. (2011, September). Sustaining cooperation in laboratory public goods experiments: a selective survey of the literature. Experimental Economics, 14 (1), 22

24 Cinyabuguma, M., Page, T., & Putterman, L. (2005, August). Cooperation under the threat of expulsion in a public goods experiment. Journal of Public Economics, 89 (8), Fehr, B. E., & Gachter, S. (2000). Cooperation and punishment in public goods experiments. American Economic Association, 90 (4), Fischbacher, U. (2007). z-tree: Zurich Toolbox for Ready-made Economic Experiments. Experimental Economics, 10 (2), Fischbacher, U., Gächter, S., & Fehr, E. (2001). Are people conditionally cooperative? Evidence from a public goods experiment. Economics Letters, 71 (3), Greiner, B. (2004). The Online Recruitment System ORSEE 2.0 A Guide for the Organization of Experiments in Economics. Hirshleifer, D., & Rasmusen, E. (1989). Cooperation in a repeated prisoner s dilemma with ostracism. Journal of Economic Behavior & Organization, 12 (1), Kerr, N. L., Rumble, A. C., Park, E. S., Ouwerkerk, J. W., Parks, C. D., Gallucci, M., & a.m. van Lange, P. (2009, July). How many bad apples does it take to spoil the whole barrel? : Social exclusion and toleration for bad apples. Journal of Experimental Social Psychology, 45 (4), Ledyard, J. O. (1995). Public goods: A survey of experimental research. In J. H. Kagel & A. E. Roth (Eds.), Handbook of experimental economics (pp ). Princeton: Princeton University Press. Maier-Rigaud, F. P., Martinsson, P., & Staffiero, G. (2010, March). Ostracism and the provision of a public good: experimental evidence. Journal of Economic Behavior & Organization, 73 (3), Masclet, D. (2003). Ostracism in work teams: a public good experiment. International Journal of Manpower, 24 (7), Masters, R. (1984). Ostracism, voice and exit: The biology of social participation. Social 23

25 Science Inforamtion, 23, Nikiforakis, N. (2008). Punishment and counter-punishment in public good games: can we really govern ourselves? Journal of Public Economics, 92, Ostrom, E., Walker, J. M., & Gardner, R. (1992). Covenants with and without a sword: Self-governance is possible. The American Political Science Review, 86 (2), Selten, R. (1975). Re-examination of the perfectness concept for equilibrium in extensive games. International Journal of Game Theory, 4, Tsebelis, G. (1990). Penalty has no impact on crime: A game-theoretic analysis. Rationality and Society, 2 (3), Appendix Questions used for the construction of a trust index These questions used in the post-experimental questionnaire are taken from the European Social Survey (ESS), All questionnaires can be viewed and downloaded at 1. Ganz allgemein gesprochen: Glauben Sie, dass man den meisten Menschen vertrauen kann, oder dass man im Umgang mit anderen Menschen nicht vorsichtig genug sein kann? Bitte sagen Sie es mir anhand dieser Skala von 0 bis bedeutet, dass man nicht vorsichtig genug sein kann, und 10 bedeutet, dass man den meisten Menschen vertrauen kann. (ESS German 2008 Welfare Attitudes, question A8) 2. Glauben Sie, dass die meisten Menschen versuchen, Sie auszunutzen, wenn sie die Gelegenheit dazu haben, oder versuchen die meisten Menschen, sich fair zu verhalten? 0 Bitte sagen Sie es mir anhand dieser Skala von 0 bis bedeutet, dass die meisten Menschen versuchen, Sie auszunutzen, und 10 bedeutet, dass die 24

26 meisten Menschen versuchen, sich fair zu verhalten. (ESS German 2008 Welfare Attitudes, question A9) 3. Und glauben Sie, dass die Menschen meistens versuchen, hilfsbereit zu sein, oder dass die Menschen meistens auf den eigenen Vorteil bedacht sind? 0 Bitte sagen Sie es mir anhand dieser Skala von 0 bis bedeutet, dass die Menschen meistens nur auf ihren eigenen Vorteil bedacht sind, und 10 bedeutet, dass die Menschen meistens hilfsbereit sind. (ESS German 2008 Welfare Attitudes, question A10) 25

27 Table 1: Determinants of Contribution Levels Models (1) (2) (3) (4) ShortEx (SE) (0.168) (0.172) (0.170) (0.167) LongEx (LE) (0.169) (0.185) (0.184) (0.180) Group Size (0.198) (0.196) (0.193) Excluded (0.720) (0.709) (0.695) Economics (0.182) (0.179) Technical Studies (0.205) (0.204) Natural Sciences (0.280) (0.275) Other Sciences (0.211) (0.210) Unemployed (0.170) (0.166) Age (0.017) (0.017) Sex(male) (0.142) (0.139) Trust (0.062) Constant (0.236) (1.465) (1.529) (1.511) Difference SE-LE s.e.(diff SE-LE) (0.171) (0.177) (0.175) (0.173) Observations 2,096 2,096 2,096 2,096 Adjusted R F Statistic Note: p<0.1; p<0.05; p<0.01 Period dummies were included in each model.