Punish Liars, Not Free-Riders

Abstract. I consider solutions to the collective action problem when contributions are voluntary and potential contributors are unsure of each other’s willingness to give. This class of problems raises two concerns that the iterated prisoner’s dilemma, and thus related mechanisms like tit-for-tat, fails to address. First, even when cooperation takes place, the outcome may be inefficient due to a suboptimal division of labor. Second, incentive problems may prevent contributors from revealing the information that would allow them to coordinate on an efficient division of labor. Using a model of repeated collective action, I show how cheap talk communication may resolve these issues. The punishment mechanism is the threat of future communication breakdown. Players are punished not for failing to contribute, but for failing to contribute what an efficient division of labor would demand. Surprisingly, in order to sustain honest communication, players must be punished not only for giving less than would be efficient, but also for giving more.