Working Papers in Economics,
University of Gothenburg, Department of Economics

Abstract: Common identity and peer punishment have been identified as important means to reduce free riding and to promote cooperation in teamwork settings. This paper examines the relative importance of these two mechanisms, as well as the importance of income distribution in team cooperation. In a repeated public good experiment, conditions vary among different combinations of homogenous or heterogeneous endowment, strong or weak identity, and absence or presence of peer punishment. We find that without punishment, strong identity can counteract the negative impact of endowment heterogeneity on cooperation. Moreover, punishment increases cooperation irrespective of income distribution and identity strength, and cooperation is similar across all treatments with punishment. These findings provide important implications for management policy makers in organizations: implementing ex ante income heterogeneity within teams should be done with caution, and a very strong peer punishment mechanism is more effective in enhancing cooperation over common identity when both are viable.

Keywords: Endowment distribution; identity; punishment; cooperation; public goods experiment

JEL-codes: C91; D63; H41; M54

30 pages, January 23, 2013

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