The effect of commitment in the public goods game with endogenous institution formation

Abstract

AbstractThis study focuses on the endogenous formation of institutions for the provision of public goods. Institutions that impose a contribution on their members can increase social welfare. However, without powerful executive authority, not all players become institutional members, and those who choose not to join the institution do not contribute to public goods. Endogenous institution formation—for example, international treaties to prevent global warming—may be a solution. This study examines the effect of commitment on endogenous institution formation for solving the public goods problem. We compared two rules in which participants either committed to join or did not join an institution. Under both rules, players who proposed to form an institution could withdraw from it during the formation process. Under the breakaway rule, the institution can be formed even if some proposers withdraw, whereas under the unanimity rule, the institution is never formed if at least one proposer withdraws. Thus, the unanimity rule required the commitment of proposers for institution formation. Our experimental result showed that the unanimity rule increased the contribution to public goods, whereas the breakaway rule did not. Our findings suggest that the commitment to become a member of an institution is essential for endogenous institution formation.