source games, a striking similarity arises. In the standard common-pool resource game, average behavior (in final periods) is fairly consistent with the standard prediction. However, if subjects have the opportunity to sanction each other, behavior becomes much more cooperative—even though the standard prediction yields the same outcome. As we have seen in our discussion, our fairness model can explain the evidence in both common-pool resource games. This holds also for the public goods games. The intuition for the one-stage public goods game is straightforward. Only if sufficiently many players have a dislike for an advantageous inequity can they possibly reach some cooperative outcome. As long as only a few players are willing to contribute if others contribute as well, they would suffer too much from the disadvantageous inequality caused by the free riders. Thus, inequity-averse players prefer to defect if they know there are selfish players. To put it differently: The greater the aversion against being the “sucker” the more difficult it is to sustain cooperation in the one-stage game.

Consider now the public goods game with punishment. To what extent is our model capable of accounting for the very high cooperation in this treatment? The crucial point is that free riding generates a material payoff advantage relative to those who cooperate. Because c < 1, cooperators can reduce this payoff disadvantage by punishing the free riders. Therefore, if those who cooperate are sufficiently upset by the inequality to their disadvantage, that is, if they have sufficiently high α ’s, then they are willing to punish the defectors even though this is costly to themselves. Thus, the threat to punish free riders may be credible, which may induce potential defectors to contribute at the first stage of the game.

Notice that according to the present model (and the inequity-aversion approach in general), a person will punish another person if and only if this reduces the inequity between the person and his opponent(s). Therefore, as long as c < 1 (as is the case in the common-pool resource problem and the public goods game analyzed previously), the model predicts punishments for sufficiently inequity-averse subjects. If, on the other hand, c ≥ 1, the Fehr-Schmidt model predicts no punishment at all. This holds regardless of whether we look at public goods games or at the common-pool resource problems. Experimental evidence suggests, however, that many subjects in fact punish others even if punishment does not reduce inequity (as is the case if c ≥ 1). Falk and colleagues (2000b) present several experiments that address this question in more detail. As it turns out, a substantial amount of punishment occurs even in situations where inequity cannot be reduced. For example, in one of their public goods games with punishment, they implemented a punishment cost of c = 1. Nevertheless, 46.8 percent of the subjects who cooperated in this game punished defectors. The conclusion from Falk et al. (2000b) is, therefore, that the desire to reduce inequity cannot be the only motivation to punish unkind acts. An alternative interpretation is offered in Falk and Fischbacher (1998), who model punishment as the desire to reduce the unkind players’ payoff(s). Their model also correctly predicts punishments in those situations where punishment is costly and cannot reduce inequity.

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