Veto Power and Coalition Formation in the Commons: An Experiment

We propose a five-player common-pool resource (CPR) game with endogenous coalition formation. We show that the level of extraction from the CPR depends on the size of each coalition that is formed and on the final coalition structure. These predictions are tested in a laboratory experiment. We consider two treatments: dictator vs. veto. In the dictator treatment, at each stage of the coalition formation game, a randomly chosen player imposes the coalition size and selected members cannot refuse to become a member. In the veto treatment, players have the right to refuse joining the current coalition if they want to and make counter-proposals. We observe that the formation of the grand coalition is more frequent in the dictator treatment. However, with the repetition of the coalition formation game, the grand coalition becomes more frequent under both treatment, and past experience of a grand coalition increases the likelihood that the current coalition structure is the grand coalition. Finally, the possibility to form coalitions is beneficial at reducing CPR extractions, compared to the singleton structure, in both treatments.