The Detrimental Effect of Group Size on Institution Formation

Abstract

A solution for the provision of public goods is the formation of sanctioning institutions. While prior laboratory experiments document a causal effect of such institutions on cooperation in small groups, groups in the field are typically much larger. We test the causal effect of group size on institution formation and show that although individual preferences are similar, institution formation is about 45% more likely to fail as group size increases. Prior results thus do not generalize to larger groups. We document the voting rule and nonparticipants’ increasing reluctance to change their mind as impeding factors in larger groups.