Does the reliability of institutions affect public good contributions? Evidence from a laboratory experiment
| DOI | http://doi.org/10.1111/sjpe.12197 |
| Published date | 01 July 2019 |
| Author | Andreas Wagener,Martin Fochmann,Björn Jahnke |
| Date | 01 July 2019 |
DOES THE RELIABILITY OF
INSTITUTIONS AFFECT PUBLIC GOOD
CONTRIBUTIONS? EVIDENCE FROM
A LABORATORY EXPERIMENT
Martin Fochmann*, Bj€
orn Jahnke** and Andreas Wagener**
ABSTRACT
Reliable institutions, i.e., institutions that live up to the norms that agents expect
them to keep foster cooperative behavior. We experimentally confirm this
hypothesis in a public goods game with a salient norm that cooperation was
socially demanded and corruption ought not to occur. When nevertheless corrup-
tion attempts came up, groups that were told that ‘the system’ had fended off
the attempts made considerably higher contributions to the public good than
groups that learned that attempts only did not affect their payoffs or that were
not exposed to corruption at all.
II
NTRODUCTION
Studies on the causes of economic prosperity emphasize the role of high-qual-
ity institutions: societies with a strong rule of law, protected property rights,
competent public administration, and solid physical and regulatory infrastruc-
tures perform economically better than societies without or with only weak
institutions (La Porta et al., 1998; Dixit, 2004; Acemoglu et al., 2005; Eicher
and Leukert, 2009; Acemoglu and Robinson, 2012). Measures of human well-
being, including subjective measures for happiness, are higher in countries
with better governance and greater state and administrative capacity (Holm-
berg et al., 2009; Ott, 2010). Arguably, many positive effects of good institu-
tions work quite directly: high-quality public infrastructure, legal security,
clarity of administrative procedures, and the state’s power to enforce con-
tracts, to regulate markets and to finance public goods generate immediate
economic benefits to citizens (Besley and Persson, 2010).
However, non-tangible aspects of institutions matter strongly, too: institu-
tions frame agents’ behavior, coordinate their beliefs, expectations, and
actions. They shape the rules of the game both formally (e.g., by laws) and
informally (e.g., by defining or reflecting norms for socially adequate
*University of Cologne
**University of Hannover
Scottish Journal of Political Economy, DOI: 10.1111/sjpe.12197, Vol. 66, No. 3, July 2019
©2018 Scottish Economic Society.
434
behavior). Good institutions set, follow, and enforce well-defined rules in the
interest of the common good. In particular, they provide a stable framework
not only for interactions of citizens with the state but also with each other. All
this can have positive effects: good institutions inculcate higher levels of civic-
mindedness, altruism, and cooperation in citizens (Rothstein, 2000; Letki,
2006). The willingness of citizens to care for, and contribute to, the public good
as well as to abstain from free-riding are contingent on the (perceived) quality
of the system within which they operate. Our main hypothesis is: institutional
reliability and credibility foster cooperative behavior among economic agents.
This hypothesis echoes earlier theoretical reasoning on the positive impact
of institutional quality, legitimacy or procedural justice on citizens’ coopera-
tion, compliance, or civic morality (see Section II for a survey). Confirming
the proposed mechanism is, however, difficult: due to positive feedback, cau-
sation may run either way. Reliable institutions encourage cooperation and
compliant behavior among citizens (top-down causality) –and cooperative,
norm-abiding citizens are more likely to establish and maintain high-quality
institutions (bottom-up causality). As such endogeneity issues are hard to
resolve empirically, we follow an experimental approach that establishes a
top-down causality.
1
With our design, we are able to provide evidence that
reliable institutions make citizens behave more cooperatively.
Our experiment proceeded as a sequence of public goods games in groups
of four players (for details, see Section III). Such games can, in various ways,
be understood to elicit the civic-mindedness of individuals: the willingness to
forgo individual gains for the social good, to cooperate with others, to act
pro-socially, to pay taxes, to comply with individually burdensome but collec-
tively beneficial social norms, etc.
2
We embedded the public goods game into
a setting with a varying (framing of) institutional reliability. By screen mes-
sages, participants were primed toward individual and institutional compliance
with social norms of cooperation and non-corruptibility. After five rounds of
undisturbed play (first part of the experiment), participants were informed
that from then on ‘corruption events’ might arise from outside the game (sec-
ond part) –which would constitute a break of the salient norm of non-corrup-
tion and could potentially come to the detriment of contributors to the public
good. There were three scenarios, in addition to a Baseline treatment without
corruption: corruption attempts could be fended off, without costs to players,
by ‘the system’ (System-Defense treatment); if not fended off, corruption
might or might not reduce the return on contributions to the public good
(Harmful-Corruption treatment and Harmless-Corruption treatment); reduc-
tions in returns were presented as a deterministic change in the payoff func-
tion. For the opening round of the second part, participants were informed
about all possible scenarios. Participants knew that their group would play in
exactly one of these treatments but were left uncertain about which treatment
1
This is, of course, not to deny that bottom-up channels might also exist.
2
Moreover, unlike tax evasion games, public goods games do not run the risk that results
might be polluted by gambling considerations.
INSTITUTIONS AND PUBLIC GOODS–LAB EVIDENCE 435
Scottish Journal of Political Economy
©2018 Scottish Economic Society
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