Voting on Sanctioning Institutions in Open and Closed Communities: Experimental Evidence

Abstract

We experimentally analyze the eect of endogenous group formation on the type of sanctioning institutions emerging in a society. We allocate subjects to one of two groups. Subjects play a repeated public goods game and vote on the sanctioning system (formal or informal) to be implemented in their group. We compare this environment to one in which subjects are allowed to (i) vote on the sanctioning system and (ii) move between groups. We nd that the possibility of moving between groups leads to a larger proportion of subjects voting for formal sanctions. This result is mainly driven by subjects in groups with relatively high initial levels of contribution to the public good, who are more likely to vote for informal sanctions when groups are closed than when they are open.

The Impact of Social Ties and Third-Party Enforcement on Collective Action and Growth: Micro Evidence from Peru

“…Not surprisingly, then, subjects in the laboratory experiments of Markussen, Putterman and Tyran (2014) prefer informal (decentralized, peer-to-peer) sanctions to hierarchical, third-party sanctions. Fear of abuse of authority may also underlie the results in Cobo-Reyes, Katz, Markussen and Meraglia (2019), who find that individuals who can move between groups are more likely to prefer formal sanctions. This work implies, and we document in Peruvian markets, that social ties among group members should enhance members' willingness to accept third party enforcement.…”