When Punishment Doesn't Pay: 'Cold Glow' and Decisions to Punish

Abstract

Economic theories of punishment focus on determining the levels that provide maximal social material payoffs. In calculating these levels several parameters are key: total social costs, total social benefits and the probability that offenders are apprehended. However, levels of punishment often are determined by aggregates of individual decisions. Research in behavioral economics, psychology and neuroscience shows that individuals appear to treat punishment as a private good (“cold glow”). Thus individual choices may not respond “appropriately” to the parameters above. This can have large consequences: realized punishment levels can be predictably above or below those that maximize aggregate material payoffs. Such behavior can lead to inefficiencies in final social outcomes such as levels of cooperation and total costs incurred. We confirm these predictions in a series of experiments. Our findings highlight the importance of the psychology of punishment for understanding social outcomes and for designing social mechanisms, for example in sentencing policy.

Keywords: punishment, cooperation, behavioral economics, law and economics

JEL Classification: D00, D07