Decentralized management of common property resources: experiments with a centuries-old institution

For centuries, villages in the Alps employed a special system for managing their common properties. Individual users could inspect other users at their own cost and impose a predetermined sanction (a fine) when a free rider was discovered. The fine was paid to the user who found a violator. Experiments with the institutions demonstrate that this mechanism considerably improves efficiency of resource use. The classical model of identical selfish agents does not capture the data as well as a model with heterogeneous and linear other-regarding preferences. Altruism and especially potentially dysfunctional behavior, such as spite and mistakes, play important positive roles. (C) 2002 Elsevier Science B.V. All rights reserved.