Institution Formation in Public Goods Games
Michael Kosfeld, Akira Okada and Arno Riedl
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| Article Citation |
Kosfeld, Michael, Akira Okada, and Arno Riedl. 2009. "Institution Formation in Public Goods Games." American Economic Review, 99(4): 1335–55.
DOI:10.1257/aer.99.4.1335
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| Abstract |
Sanctioning institutions are of utmost importance for overcoming free-riding
tendencies and enforcing outcomes that maximize group welfare in social
dilemma situations. We investigate, theoretically and experimentally, the
endogenous formation of institutions in public goods provision. Our theoretical
analysis shows that players may form sanctioning institutions in equilibrium,
including those governing only a subset of players. The experiment confirms
that institutions are formed and that it positively affects cooperation and group
welfare. However, the data also shows that success is not guaranteed. Players
are unwilling to implement equilibrium institutions in which some players have
the opportunity to free ride. Our results emphasize the role of fairness in the
institution formation process. (JEL C72, D02, H41)
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| Article Full-Text Access |
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| Additional Materials |
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| Authors |
Kosfeld, Michael (Johann Wolfgang Goethe U Frankfurt and IZA, Bonn)
Okada, Akira (Hitotsubashi U)
Riedl, Arno (Maastricht U and CESifo, Munich)
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| JEL Classifications |
C72: Noncooperative Games
D02: Institutions: Design, Formation, and Operations
H41: Public Goods
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