Endogenous Authority and Enforcement in Public Goods Games

This paper investigates theoretically and experimentally the social benefits and cost to have an endogenous punishment-enforcing authority in public goods game. An authority is chosen among members of a society via an imperfectly discriminating contest prior to a public goods game. Once chosen the authority has a large degree of discretion to inflict punishment. Our theoretical result shows that an efficiency gain from having the endogenous authority always comes with a social cost from competing for being the authority. The larger the society is, however, the bigger the efficiency gain and the smaller the rent dissipation. The completely efficient outcome can be approximated as the size of society tends to infinity. The experimental results confirm that the presence of endogenous authority for a given group size increases the public goods contributions and the efficiency gain is significantly bigger in a larger group.