An individualistic approach to institution formation in public good games

In a repeated public goods setting, we explore whether individuals, acting unilaterally, will provide an effective sanctioning institution. Subjects first choose unilaterally whether they will participate in a sanctioning stage that follows a contribution stage. Only those who gave themselves the “right” to punish can do so. We find that the effectiveness of the institution may not require provision of the institution at the level of the group. Individuals acting unilaterally are able to provide sanctioning institutions that effectively raise cooperation. The effectiveness of the institution, however, depends on whether the “right” to sanction entails a monetary cost or not.