Rich and Poor: On the Emergence of a Sanctioning Institution

This paper analyzes the implementation of centralized sanctioning on free-riding behavior in societies where wealth heterogeneity leads to different individual incentives with respect to public goods. The decision on the implementation is made by a government representing a social class. We show that if the sanctioning institution can achieve contribution by the entire population, the government representing the poor will implement it more often. This will always be efficient. However, if the sanctioning institution only achieves contribution by part of the population, the government of a free-riding rich class can implement it more often. This may be inefficient.