This paper experimentally investigates the effects of a costly punishment option on cooperation and social welfare in long finitely repeated public good contribution games. In a perfect monitoring environment increasing the severity of the potential punishment monotonically increases both contributions and the average net payoffs of subjects. In a more realistic imperfect monitoring environment, we find a U-shaped relationship between the severity of punishment and average net payoffs. Access to a standard punishment technology in this setting significantly decreases net payoffs, even in the long run. Access to a very severe punishment technology leads to roughly the same payoffs as with no punishment option, as the benefits of increased cooperation exactly offset the social costs of punishing. Our findings parallel findings in the empirical literature on gun control in that more severe weapons in criminal acts and in self-defense are used less frequently, as their intimidating factor is often sufficient in preventing offenses.
revision requested by the American Economic Review