The Individual-Team Discontinuity Effect on Institutional Choices: Experimental Evidence in Voluntary Public Goods Provision

Teams are known to be more cognitively able, and accordingly behave more efficiently, than individuals. This paper provides the first experimental evidence of the so-called “individual-team discontinuity effect” in an institutional setting. In a finitely repeated public goods game where sanctioning institutions are available, teams sustain cooperation surprisingly better than individuals. The superiority of teams is driven by their effective use of punishment. Given an opportunity to construct a formal sanction scheme in their groups, teams enact deterrent schemes by voting much more frequently than individuals. When peer-to-peer punishment is possible, teams inflict costly punishment more frequently on low contributors than individuals, thereby reducing the relative frequency of “misdirected” punishment among teams. These results underscore the effectiveness of having teams as a decision-making unit in organizations in mitigating collective action dilemmas.