The Use and Abuse of Coordinated Punishments
A principal plays trust games with a sequence of short-lived agents who must communicate deviations to sustain cooperation. We argue that agents can abuse communication by shirking and threatening to report a deviation unless the principal nevertheless pays them. To make this threat credible, we allow agents to probabilistically commit to messages as a function of the principal's action. In equilibrium, this threat increases the agents' share of surplus but decreases total surplus; no cooperation can be sustained if agents can always commit. We show how evidence of strong bilateral principal-agent relationships mitigate this problem and partially restore cooperation.
Barron, Daniel. 2018. The Use and Abuse of Coordinated Punishments.