Abstract: This paper investigates the effect of costly monitoring in a voluntary contribution mechanism (VCM) experiment with punishment opportunities. Unlike the standard VCM with punishment, in which an individual’s allocation to the group account is released to other members in the group without any cost, a unique feature of our experimental design is that subjects need to specify the members whose allocation(s) they wish to observe. Subjects pay a fixed amount per group member monitored in the costly monitoring treatments, and can observe contributions of each member they select at no additional cost in the free monitoring treatments. Consistent with the findings in related experimental studies on incomplete information, we show that the hindrance to information reduces both contributions and average net payoffs. We also find that pro-social subjects are more likely to pay to monitor other members in their groups. Surprisingly, the extra cost of monitoring has significant effects on punishment behavior. Conditional on monitoring, a subject gives more punishment to a low contributor when monitoring is costly than when it is free.

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