DP5497 Choosing the Stick or the Carrot? Endogenous Institutional Choice in Social Dilemma Situations

Author(s): Stefan Haigner, Martin Kocher, Matthias Sutter
Publication Date: February 2006
Keyword(s): endogenous institutional choice, experiment, public goods, punishment, reward, voting
JEL(s): C72, C91, C92
Programme Areas: Public Economics, Industrial Organization
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=5497

We analyse an experimental public goods game in which group members can endogenously determine whether they want to supplement a standard voluntary contribution mechanism with the possibility of rewarding or punishing other group members. We find a large and positive effect of endogenous institutional choice on the level of cooperation in comparison to exogenously implemented institutions. This suggests that democratic participation rights enhance cooperation in groups. With endogenous choice, groups typically vote for the reward option, even though punishment is actually more effective in sustaining high levels of cooperation. Our results are evaluated against the predictions of social preference models.