An individualistic approach to institution formation in public good games

• Published in: Journal of economic behavior & organization Vol. 129; pp. 18 - 36
• Main Authors: Ramalingam, Abhijit, Godoy, Sara, Morales, Antonio J., Walker, James M.
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01.09.2016; Elsevier Sequoia S.A
• Subjects: Cooperation; Decision analysis; Effectiveness studies; Experiment; Game theory; Games; Institution formation; Public good; Public goods; Punishment; Sanctions; Unilateral provision; Punishment; Institution formation; H41; Unilateral provision; Experiment; Cooperation; D02; C91; Public goods; C92; C72
• ISSN: 0167-2681; 1879-1751
• DOI: 10.1016/j.jebo.2016.06.003

•In a public goods experiment, we investigate if individuals will unilaterally provide a sanctioning institution.•Only individuals who give themselves the ‘right’ to punish can do so.•Sanctioning need not be provided at group level; individuals can, and do, provide sanctioning in groups.•Sanctioning is effective at raising cooperation when its provision is costless.•However, even a negligible monetary provision cost leads to counterproductive use of sanctioning. In a repeated public goods setting, we explore whether individuals, acting unilaterally, will provide an effective sanctioning institution. Subjects first choose independently whether they will participate in a sanctioning stage that follows a contribution stage. Only those who gave themselves the “right” to sanction can do so. We find that the effectiveness of the institution may not require provision of the institution at the level of the group. Individuals acting unilaterally are able to provide sanctioning institutions that effectively raise cooperation. The effectiveness of the institution, however, depends on whether the “right” to sanction entails a monetary cost or not.