This paper examines why people are willing to take actions that decrease the material payoffs of others in bilateral bargaining and N-person public good games. Our examination is motivated by but not limited to recently developed theories of fairness and reciprocity. In the public good game we find strong support for the hypothesis that co-operators punish the free-riders which refutes the predictions of the Bolton-Ockenfels model. However, if punishment of others improves the position of the punisher relative to the punished player, we also find evidence for free-riders who punish co-operators and for co-operators who punish other co-operators. Interestingly, if punishment cannot improve the relative position the only people who punish are the co-operators and free-riders are the only target.

Co-authors Armin Falk and Ernst Fehr