Selecting public goods institutions: Who likes to punish and reward?

Abstract

We study the link between individual attitudes toward uncertainty on the one hand, and preferences over, as well as behavior within, various public goods institutions on the other hand. We incentive‐compatibly elicit preferences over voluntary contribution mechanisms with and without reward and punishment options and then randomly assign subjects to play in one of the four institutions. We find that payoffs are significantly greater when punishment is allowed but that only a small minority of participants prefers such an environment. Somewhat surprisingly, preferences over institutions are generally independent of individual characteristics. Conversely, individual characteristics, including institutional preferences, are significantly predictive of behavior in the public goods game. For instance, risk‐averse individuals preemptively punish more often. This suggests that when studying sanctions and rewards, it is important to consider individual attitudes toward risk and uncertainty—although they may not affect the original selection into institutions.