Resolving a public good dilemma using reward and sanction mechanisms

Abstract

This study investigates the effect of reward and sanction mechanisms on contributions to a public good fund in an experimental context. Thirty-six participants were recruited from a first year economics course, based on their responses to a trust questionnaire. They participated in an experiment in which they were asked to contribute funds to public and private accounts. In addition, they were asked in the experimental conditions to contribute to a reward fund, a sanction fund, or both. The results of the experiment were that while both sanction and reward mechanisms were equally effective at inducing participants to contribute to a public good fund, the presence of a reward mechanism is critical in raising participant profits. No effect of trust on contributions or profit was found, but this may be due to a small sample pool.