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

51 Pages Posted: 23 May 2006

See all articles by Stefan Haigner

Stefan Haigner

University of Innsbruck - Department of Public Economics

Martin G. Kocher

Ludwig Maximilian University of Munich - Faculty of Economics; Institute for Advanced Studies (IHS) - Department of Economics & Finance; Göteborg University - School of Business, Economics and Law; Queensland University of Technology - School of Economics and Finance

Matthias Sutter

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods; University of Cologne - Department of Economics

Date Written: February 2006

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 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.

Keywords: Public goods, punishment, reward, endogenous institutional choice, voting, experiment

JEL Classification: C72, C91, C92

Suggested Citation

Haigner, Stefan and Kocher, Martin G. and Sutter, Matthias, Choosing the Stick or the Carrot? Endogenous Institutional Choice in Social Dilemma Situations (February 2006). CEPR Discussion Paper No. 5497. Available at SSRN: https://ssrn.com/abstract=903911

Stefan Haigner (Contact Author)

University of Innsbruck - Department of Public Economics ( email )

Universitätsstraße 15
Innsbruck, Innsbruck 6020
Austria

Martin G. Kocher

Ludwig Maximilian University of Munich - Faculty of Economics ( email )

Ludwigstrasse 28
Munich, D-80539
Germany

Institute for Advanced Studies (IHS) - Department of Economics & Finance ( email )

Stumpergasse 56
A-1060 Vienna, A-1060
Austria

Göteborg University - School of Business, Economics and Law ( email )

Vasagatan 1
Goteborg, 40530
Sweden

Queensland University of Technology - School of Economics and Finance ( email )

GPO Box 2434
2 George Street
Brisbane, Queensland 4001
Australia

Matthias Sutter

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods ( email )

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany

University of Cologne - Department of Economics

Cologne, 50923
Germany

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