Journal Article

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

Matthias Sutter, Stefan Haigner and Martin G. Kocher

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 77, issue 4, pages 1540-1566
Published in print October 2010 | ISSN: 0034-6527
Published online October 2010 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1111/j.1467-937X.2010.00608.x
Choosing the Carrot or the Stick? Endogenous Institutional Choice in Social Dilemma Situations

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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 significantly positive effect of endogenous institutional choice on the level of cooperation in comparison to the same exogenously implemented institutions. This suggests that participation rights enhance cooperation in groups. With endogenous choice, groups typically vote for the reward option, although punishment is even more effective in sustaining high levels of cooperation. Our results are evaluated against the predictions of social preference models.

Journal Article.  12573 words.  Illustrated.

Subjects: Economics

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