Endogenous and costly institutional deterrence in a public good experiment

• Paper investigates a central authority institution within a linear public good game.
• Deterrence is determined by the number of group members who may be monitored.
• Monitoring each additional group member is costly and increases the fixed cost of the institution.
• Deterrence is both exogenously and endogenously determined across treatments. The endogenous selection of a non-deterrent does not increase cooperation

Modern societies rely on formal, central authority institutions that regulate the behavior of all members of society. This paper investigates the formation of a central authority regime within a linear public good experiment. The institution is funded by a fixed cost that increases with the level of deterrence, which is specified as the number of group members who are likely to be monitored. The level of deterrence is both exogenously and endogenously determined, allowing investigation of the effect of endogenous selection. The results indicate no significant positive endogenous selection effect. Indeed, in contrast to the existing literature, when a non-deterrent central authority is endogenously determined contributions tend to decrease.