Endogenous monitoring and group incentives: a possible efficiency gain in a public bad game

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Pollution problems are typically modelled using public bad games, in which pollution has some private gain, but negative externalities. Under this framework, the literature typically considers either pollution in which each individual can be(costlessly) observed, or only group level outcomes can be monitored by the principal. These two problems have typically been viewed as entirely separate, but really can be seen as two ends of a continuum dependent on the price of monitoring. It is trivial to show that costly individual-agent level monitoring, with a bonus payment for compliance, can lead to efficiency gains, if the agent makes a decision on whether to purchase this monitoring. We wish to test whether this game theory prediction is realised in the lab, and need advice on the experimental set-up which best allows us to achieve this.