Monitoring and punishment networks in a common-pool resource dilemma: experimental evidence

This study uses a laboratory experiment to simulate an environmental dilemma: a group of individuals sharing a natural resource from which they can individually gain an advantage. Self-serving individuals may hasten the collapse of a biological resource or a ‘tragedy of the commons’ because they choose to maximise their earnings rather than cooperate.

Shreedhar et al. find that in networks with ‘perfect monitoring’, where all individuals can monitor and punish the behaviour of everyone else, there is a reduction in net gains for all individuals in the network over a fixed period. Individuals use excessive punishment, punishing those who do not cooperate as well as those who do. This implies that perfect peer monitoring and punishment may not be the best way to achieve the greatest welfare in the setting used in this study, compared with other networks where individuals can only monitor those they are directly connected to (for instance, due to geographical distance); this is called ‘imperfect monitoring’.

The research also reveals that individuals tend to over-estimate how cooperative others will be. In better connected networks, with greater feedback on the behaviour of other parties, individuals update their expectations to be more accurate.

This study highlights that the network structure impacts social welfare and provides a cautionary lesson about the cost of exclusively relying on perfect peer monitoring and punishment to enhance cooperation.

Key points for decision-makers

• Using a laboratory experiment this study investigates how the monitoring and punishment within networks affects social welfare, i.e., how much benefit a group of individuals obtain from taking from a shared resource.
• The research finds that in networks where all participants are able to monitor and punish everyone else the net gains from the network are reduced. Individuals tend to punish those who cooperate as well as those who do not.
• These findings suggest perfect monitoring and punishment may not be the best arrangement to maximise gains in a ‘tragedy of the commons dilemma’.
• Individuals are found to overestimate the cooperation of others. In networks where they have more information from monitoring the behaviour of others, individuals have more accurate expectations.

ISSN 2515-5717 (Online) – Grantham Research Institute Working Paper series
ISSN 2515-5709 (Online) – CCCEP Working Paper series

A version of this working paper has subsequently been published in the journal Environment and Development Economics.