Ostracism and forgiveness

With S. Nageeb Ali

Conditionally accepted by The American Economic Review

Abstract: Many communities rely upon ostracism to enforce cooperation: if an individual shirks in one relationship, her innocent neighbors share information about her guilt in order to shun her, while continuing to cooperate among themselves. However, a strategic victim may herself prefer to shirk, rather than report others' deviations truthfully. If guilty players are to be permanently ostracized, then such deviations are so tempting that cooperation in any relationship is bounded by what the partners could obtain through bilateral enforcement. We show that ostracism can improve upon bilateral enforcement if it is tempered by forgiveness, through which guilty players are eventually readmitted to cooperative society.

Major update: Working paper 7/7/2015

Wasteful sanctions, underperformance, and endogenous supervision

With Kareen Rozen

Published in The American Economic Journal: Microeconomics, 6(4):326–361, November 2014

Abstract: We study optimal contracting in team settings where agents have many opportunities to shirk, task-level monitoring is needed to provide useful incentives, and it is difficult to write individual performance into formal contracts. Incentives are provided informally, using wasteful sanctions like guilt and shame, or slowed promotion. These features give rise to optimal contracts with underperformance, forgiving sanctioning schemes, and endogenous supervision structures. Agents optimally take on more assigned tasks than they intend to complete, leading to the concentration of supervisory responsibility in the hands of one or two agents.

Published article (restricted access)

Published article and Supplementary Appendix (free access)