The Discontinuity Effect: The Interaction of Joint Decision-Making with Formal and Informal Sanction Mechanisms

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Teams are an increasingly popular unit in economic decision making, yetdecisions made by teams are treated as synonymous to those made byindividuals in traditional economic theory. However, where individuals havebeen documented to deviate from theoretical predictions both experimentallyand empirically, teams have been shown to be more cognitively able and tobehave more rationally, referred to as the 'discontinuity effect'. Thisdissertation project is the first to explore this effect in its application toinstitutional choices and self-organisation.This will be achieved using three experimental projects which focus onformal and informal mechanisms to correct non-cooperative behaviour in alinear public goods game. In each setting the behaviour of the team as asingle decision making unit will be compared to that of the individual in theareas including contribution levels and reward/sanction behaviour.Furthermore, complimenting each of these projects will be a theoreticalanalysis using behavioural models.The first project will explore the ability of the team to design an effectiveformal mechanism by voting on sanction and redistribution parameters. Thesecond project compares the use of formal and informal mechanisms,including which is more preferable and under which higher contributionlevels are achieved. The final project will examine the use of exogenouslyimposedand endogenously-adopted mechanisms, thus identifying whethera 'democracy premium' exists, and whether it is more relevant to teams. Itis hypothesised that the unique features of group behaviour will allow formore robust and sustainable mechanisms to be designed and implemented.