Voting on sanctioning institutions in open and closed communities: experimental evidence

Abstract

We experimentally analyze the effect 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 find 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.