van der Weele, J. (2012). The signaling power of sanctions in social dilemmas Journal of Law, Economics, and Organization, 28(1):103--126.

Evidence from field and laboratory experiments indicates that a large fraction of the people behave like conditional cooperators in public good games. In this article, I investigate the implications of the existence of both conditional cooperators and egoists for optimal law enforcement strategies. When norms of cooperation exist between conditional cooperators, sanctions set by an authority can be lower than in a 'Hobbesian' setting where everybody is egoistic. Moreover, if the authorities have private information about the fraction of egoists in society, low sanctions can be optimal because they signal that there are few defectors and thus 'crowd in' trust and cooperation between agents. In social dilemmas where conditional cooperation is an important factor, as is the case in tax compliance, the model provides a rationale for the low observed sanctions in the real world and the mixed evidence on the effectiveness of deterrence.