Selecting Public Goods Institutions: Who Likes to Punish and Reward?

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. In particular, we measure individual levels of risk aversion and ambiguity aversion over both gains and losses. We then incentive-compatibly elicit preferences over voluntary contribution mechanisms with and without reward and punishment options. Finally we randomly assign subjects to one of the four institutions and observe repeated play. 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. On the other hand, institutional preferences, as well as individual characteristics, are significantly predictive of behavior in the public goods game. For instance, risk averse individuals preemptively punish more often when that option is available. This result suggests that when studying social behaviors involving sanctions and rewards, it is important to consider individual attitudes toward risk and uncertainty—although they may not affect the original selection into institutions.