The Effects of Centralized Power and Institutional Legitimacy on Collective Action

Abstract

Most observed institutional arrangements, observed in governments, firms, and other organizations, acknowledge the effectiveness of imposing sanctioning institutions and monitoring policies to achieve particular goals. Nevertheless, less attention has been paid to the influences of the delegation mechanism of sanctioning power, particularly, the legitimacy of the authority/institution, in centralized institutional arrangements. We report laboratory-experimental results that compare the performance of exogenous delegation versus the endogenous delegation of sanctioning power. The endogenous power distribution, defined as Democracy, weakly dominates the exogenous arrangement, the Leviathan, in terms of contribution levels and economic efficiency. However, the observed differences are not statistically significant, regardless of the effectiveness of the sanctions imposed. Democratic schemes are weakly preferred in centralized power environments, and existing evidence contradicts the belief of a robust causal relationship between indirect democratic institutions, collective action, and economic outcomes.

Keywords: public goods games, sanctioning institution, centralized power, representative democracy

JEL Classification: C92, D72, H41