Economic environments involving information goods suffer from an extensive free-riding problem. For example, social loafing and lurking on discussion forums, leeching on file-sharing networks, and pirating of digital goods. Despite their use, it is not clear what types of interventions result in the best outcomes for all players involved. We conduct a lab experiment using a public goods game to explore the role of rewards and sanctions or free-riding behavior at both the individual and group levels. Our results provide interesting insights on the behavior of free-riding and the use of incentives. Interestingly, sanctioning only the worst free-rider results in a significant decrease in free-riding for that player and marginal decreases in free-riding for all others. Rewarding only the highest contributor results in a significant increase in free-riding for everyone. Overall, our research offers significant insights for the design and implementation of interventions for environments having the free-rider problem.
