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

TLDR

The study examines how allowing group members to choose between rewarding or punishing in a public goods game affects cooperation. The experiment lets participants select reward or punishment mechanisms, and the results are compared to social preference model predictions. Endogenous choice of reward or punishment increases cooperation relative to exogenous institutions, with groups favoring rewards but punishment yielding higher cooperation.

Abstract

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.