[ Abstract / Highlights ]
A laboratory experiment is used to show that teams as a decision-making unit behave more efficiently than individuals in an institutional setting. Subjects make voting choices over formal versus informal (peer to peer) sanctions in a finitely repeated public goods dilemma. When a formal sanction scheme is selected in their groups, teams vote for deterrent sanction rates much more frequently than individuals. When an informal sanction scheme is selected, teams inflict costly punishment more frequently on low contributors than individuals, thereby reducing the relative frequency of “misdirected” punishment among teams. As such, teams sustain cooperation surprisingly better than individuals regardless of which scheme is enacted. These behavioral patterns are consistent with the idea of “truth wins” which proposes that teams achieve better choices than individuals through deliberation and learning. The results underscore the effectiveness of having teams as a decision-making unit in organizations in combating a moral hazard problem, such as free riding.