Norm enforcement with incomplete information

We study the emergence of norms and their enforcement in a public goods game with private information about endowments. Subjects were randomly assigned a Low or High endowment and, across treatments, endowments were either Observed or Unobserved. In both treatments subjects could enforce contributions with peer punishment. We use punishment decisions to estimate contribution norms and then estimate the expected costs of noncompliance. In Observed, both Low and High types enforce a “contribute-your-endowment” norm, adjusting the costs of noncompliance to account for each type’s endowment. In Unobserved we find that groups adapt to incomplete information by adopting a “contribute-the-Low-endowment” norm, and our expected cost calculations suggest that the enforcement of this norm balances the benefits of cooperation with the risk of misguided punishment. When at least one High type pools with Low types (by contributing less than or equal to the Low endowment), contributions of zero are punished as if they come from a High type, while contributions equal to the Low endowment are not punished in expectation (in case they come from a cooperative Low type). This enforcement strategy prevents cooperation from unraveling, but it also enables High types to hide behind the Low endowment. Our results dovetail with results from bargaining games and suggest that in settings with incomplete information, norms can attenuate but not eliminate non-cooperative behavior.