26 Nov 2008

Carrots and Sticks

As someone well-versed in corruption, asymmetric information, self-interest, etc.,* I am a HUGE skeptic of regulations designed to "make people do the right thing," and this experimental paper [PDF] provides some useful evidence of how things really work:
We conducted a series of framed public goods experiments in fishing communities off the Caribbean coast of Colombia to investigate the relative effectiveness of regulatory pressure and pro-social emotions in promoting cooperative behavior.

The random public revelation of an individual’s contribution and its consequences for the rest of his or her group leads to higher public good contributions and higher social welfare than regulatory pressure, even under regulations that are designed to motivate fully efficient contributions
Not surprisingly, peer reputation (and pressure) is more effective than rules -- even clever ones.

Bottom Line: The best system is one that people want to belong to. Use more carrots and fewer sticks.

* We all drive under the speed limit, drink responsibly, etc. -- right?