environments, we use a laboratory experiment in which we form groups and assign leadership roles at random. We study an environment … behavior. Moreover, appointing leaders who are likely to have acted dishonestly in a preliminary stage of the experiment yields …

rather than a risk-less pie. Contrary to theory, the comparatively less risk adverse residual claimants benefit the most … the intuition that risk exposure is detrimental, we show that residual claimants are able to extract a risk premium, which … is increasing in risk exposure. In some cases the premium is so high that it is advantageous to bargain over a risky pie …

of our laboratory experiment do not support this latter view, though. In fact, weakening the participation requirement …

, including those where institutions govern only a subset of players. The experiment confirms that institutions are formed … institution formation process is guided by behavioral principles not taken into account by standard theory. …