Gun for hire: Delegated enforcement and peer punishment in public goods provision

This paper compares two methods to encourage socially optimal provision of a public good. We compare the efficacy of vigilante justice, as represented by peer-to-peer punishment, to delegated policing, as represented by the hired gun mechanism, to deter free riding and improve group welfare. Small self-governing organizations often place enforcement in the hands of an appointed leader-the department chair, the building superintendent, and the team captain. This hired gun, we show, need only punish the least compliant group member, and then only punish this person enough so that the person would have rather been the second least compliant The hired gun mechanism is an example of a low cost device that promotes complete compliance as the unique Nash equilibrium. We find that subjects are willing to pay to hire a delegated policing mechanism over 70% of the time and that this mechanism increases welfare between 15% and 40%. Moreover, the lion's share of the welfare gain comes because the hired gun crowds out vigilante peer-to-peer punishments. (C) 2012 Elsevier B.V. All rights reserved.